Canada’s Carbon Policy in a Global Trade Context

Carbon emission reduction policies are becoming increasingly common worldwide as countries implement stricter regulations to reduce so-called greenhouse gas emissions. These policies could affect both national and international trade for countries like Canada. Canada’s federal carbon pricing system was introduced in 2019 and comprises two components: a fuel charge and an output-based pricing system (OBPS). The fuel charge constitutes a tax on fossil fuels, gasoline, and natural gas, serving as a regulatory charge. The OBPS functions as a performance-based system for industries (Government of Canada 2023). Recently, Canada has faced some geopolitical tensions with the United States (US), by far its largest trading partner (Bhattacharjee & Kamatham 2025). These tensions have led Canada to reassess its global trade relationships and explore new opportunities to diversify its export markets.