The pollution card: encouraging reverse tactics?

Canada enthusiastically joined many other countries around the world to support the "Earth Hour 2008" action on 29 March, but Canadian businesses and economists have also been discussing the possible impact on offshore strategies by Canadian companies if the country introduces a carbon tax on imports.

According to a recent CIBC World Markets report, if Canada joins the US and EU countries imposing a carbon tariff on developing, particularly China-manufactured goods, this may have the effect of reviving manufacturing in Canada. Carbon taxes could combine with high oil prices to offset the benefits of outsourcing.

Many Canadian consumers acknowledge climate change and are showing a preference for eco-friendly products. Canadian Federal and Provincial Governments are also actively studying and implementing measures to help improve the environment.

British Columbia became the first jurisdiction in North America to introduce a carbon tax. In February the provincial government launched an escalating tax to take effect from 1 July.

From that date, US$10 is to be charged per tonne of carbon, to be applied to most fossil fuels such as gasoline, coal, propane, natural gas and home heating fuel. This self-imposed tax is later expected to have an external perspective, to cover Canada's trading partners.

As Canada gradually imposes carbon tax domestically, it will also likely start to require importers to contribute to the higher tax burden. This is expected to apply to major trading partners such as China.

A sunnier world, at a cost.

If and when a carbon tax is added to Chinese mainland imports, it could cause a substantial inflationary impact. This, coupled with high energy costs and Canadian consumers' preference for eco-friendly products, might encourage Canadian importers and manufacturers to shift production back home.

Hong Kong companies would be wise to watch this development, as it affects direct and offshore trade patterns between Canada, Hong Kong and the Chinese mainland.

from Andrew Yui, Toronto Office

Images courtesy of:
Niksa Arne
Sanja Gjenero