Abstract
As major global jurisdictions implement Carbon Border Adjustment Mechanisms (CBAM) to prevent carbon leakage and protect domestic industrial competitiveness, open and resource-reliant economies face significant economic shifts. This study utilizes a recursive dynamic, multi-sector Computable General Equilibrium (CGE) model to forecast the macroeconomic and sectoral impacts of international border carbon adjustments on Canada's energy-intensive and trade-exposed (EITE) industries through 2035. Calibrated to the GTAP database and augmented with sub-national Canadian provincial accounts, our model evaluates three policy scenarios: unilateral European Union CBAM implementation, a joint EU-United States border carbon regime, and an integrated North American carbon pricing adjustment mechanism. The simulations indicate that while unilateral EU adjustments exert modest aggregate gross domestic product (GDP) contractions (-0.08% by 2030), the aluminum, basic chemicals, and primary steel sectors experience substantial export contractions ranging from 2.4% to 6.1%. Crucially, the establishment of a bilateral US-Canada carbon border framework substantially mitigates export losses by capitalizing on Canada's relatively low-carbon electricity grid, shifting sectoral output toward low-emissions manufacturing. We conclude that Canadian climate policy must strategically harmonize benchmark carbon intensity metrics with key trading partners to safeguard industrial competitiveness while accelerating industrial decarbonization.
