Are tariffs at odds with global decarbonization goals?

Earlier this week, President Trump announced plans to impose a 50% tariff on Canadian steel and aluminum. That decision has since been revised, with the US implementing a sweeping 25% tariff on steel and aluminum as of March 12. Regardless of these back-and-forth changes, one thing is clear: global trade is becoming increasingly volatile, and the effects of these policies extend beyond economics to impact both climate goals and industrial sustainability.

Why penalising Canada’s low-carbon aluminum could raise global emissions

The US’s decision to impose tariffs on aluminum imports from Canada may be driven by economic protectionism, but it comes with environmental consequences. Canada produces some of the lowest-carbon aluminum in the world — in fact, Canadian aluminum producers have the lowest carbon footprint among major producers — thanks to a reliance on hydro-powered smelting. If tariffs make Canadian aluminum less competitive, US buyers may turn to alternative suppliers, many of which produce aluminum with a significantly higher carbon footprint. 

This raises a key question: are tariffs at odds with broader decarbonization goals?

Canada is a key supplier for aluminum trade

Canada, the world’s fourth-largest primary aluminum producer, is also the largest supplier to the US, exporting over 2.7M tonnes — accounting for 75% of all primary aluminum imported into the country.

This dominance is largely due to Canada’s clean energy advantage. Most of its aluminum smelters are powered by hydroelectricity, resulting in some of the lowest-carbon primary aluminum in the world.

Producing aluminum is both expensive and energy-intensive, which is why it makes economic sense to produce it where energy is abundant and low-cost. British Columbia and Quebec are primary producers of aluminum, due to cheap hydroelectricity. The Sept-Îles smelter in Quebec alone produces 628,000 tonnes of aluminum, nearly matching the entire U.S. production of 680,000 tonnes in 2024. 

By contrast, aluminum production in regions like China and the Middle East is often powered by coal and natural gas, making it far more emissions-intensive. For example, Chinese aluminum smelters produce an average of 12.7 t CO2e per tonne of aluminum from coal-fired power generation. (The global average is 10.3 tonnes of carbon per tonne of aluminum produced.)

Canada, along with Norway and Iceland, has among the lowest energy-related CO2 emissions intensities in aluminum production globally, at just over 2 t CO2e per tonne of aluminum. This is primarily due to the low-carbon electricity used in the electrolysis process, which accounts for a large share of energy use in primary aluminum production.

The impact of tariffs: higher costs, higher emissions

We anticipate that a penalty on Canada’s low-carbon aluminum will have three major consequences:

• Trade diversion: The US cannot ramp up aluminum production overnight. With tariffs increasing the cost of Canadian aluminum, US buyers may shift to alternative suppliers, even if their carbon intensity is higher.
• Embedded carbon increases: Sourcing aluminum from countries that rely on fossil-fuel-powered smelting could significantly increase the emissions profile of US imports.
• Regulatory misalignment: Though low-carbon industry may not be a top priority for the current US administration, US businesses operating internationally are still subject to regulations like CSRD and CBAM. The CBAM (Carbon Border Adjustment Mechanism) applies fees on carbon-intensive imported materials into the EU, making it costly for US exporters using high-emission aluminum.

The long-term consequences of these tariffs could shape supply chains for years to come. Broadly, penalizing Canada’s cleaner aluminum runs counter to global decarbonization efforts. 

A policy blind spot: when economic protectionism meets supply chain realities

These tariffs create a carbon leakage problem, where emissions are simply shifted to other regions rather than reduced. As the global economy transitions toward low-carbon supply chains, Canada’s aluminum will remain attractive to markets prioritizing sustainability.

For US companies with international operations, these tariffs could create a two-edged burden:

• Higher costs for sourcing low-carbon Canadian aluminum.
• Or if sourcing elsewhere, increased risk of losing EU customers seeking to avoid CBAM fees on emissions-intensive materials.

The tariffs could also push Canada to seek alternative markets, reducing overall North American supply chain integration and potentially weakening future cooperation. Over time, this could reshape the aluminum market in ways that impact both pricing and availability for US industries.

What’s the alternative? Smarter trade policies for a low-carbon economy

Trade policies should consider carbon intensity as a key factor — not just economic protectionism. Many industries are already facing carbon-related regulations, and will be exposed to carbon pricing.

If US manufacturers source aluminum or other materials with high embedded emissions, they could face higher compliance costs in global markets where carbon pricing is expanding. A trade policy that prioritizes low-carbon imports helps future-proof industries against evolving regulations and carbon pricing mechanisms.

What might that look like?

• Carbon-adjusted tariffs: A trade policy that differentiates based on carbon intensity would allow businesses to balance cost, carbon exposure, and long-term competitiveness.
• North American green supply chains: A US-Canada aluminum trade framework that prioritises low-carbon production could reinforce economic ties while advancing climate goals.
• CBAM-style adjustments: The US could introduce carbon border measures similar to the EU’s CBAM, ensuring that imports reflect their true environmental impact. The Foreign Pollution Fee Act (FPFA) is exactly that — a carbon border adjustment legislation that seeks to apply tariffs to products imported into the US which are more carbon-intensive than goods produced domestically. However, the FPFA has yet to be implemented in the US.

Factoring carbon intensity into trade policies goes beyond climate concerns. It would help ensure economic resilience, supply chain security, and industrial competitiveness.

Where do we go from here?

Tariffs on Canadian aluminum may — or may not — serve short-term economic goals, but they come with trade-offs: 

• Higher costs for manufacturers
• Weaker North American supply chains
• A shift toward higher-carbon materials

For industries like aerospace and automotive, particularly EV manufacturers, restricting access to Canada’s aluminum risks undermining competitiveness and creating regulatory and reputational challenges if supply chains pivot to dirtier sources. The key challenge will be balancing cost, supply chain stability, and potential long-term regulatory exposure.

Ultimately, as global trade policies evolve, so too will the frameworks businesses use to evaluate sourcing decisions. Whether through tariffs, trade agreements, or alternative policy mechanisms, the intersection of economic and environmental factors will continue to influence how metals move across borders.

Stay ahead of shifting trade and carbon policies

Could this signal a broader shift toward protectionism in the metals market? Is this policy a preview of more aggressive trade measures to come? Only time will tell. One thing is certain: no matter how tariffs shake up the market, sourcing metals sustainably remains smart business.

Tariffs, carbon pricing, and supply chain pressures are reshaping the metals market. CarbonChain provides the real-time carbon data and industry insights you need to make informed sourcing decisions, manage rising carbon costs, and build a resilient, low-carbon supply chain. Get in touch to see how we can help.

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