Carbon Pricing and Competitiveness Pressures: The Case of Cement Trade

The impact of unilateral carbon pricing on domestic industry is a central element in current policy debates dealing with mitigation of greenhouse gas emissions. This is especially the case for industries that are both emission intensive and trade exposed. A poster child for these vulnerable industries is the cement industry. In this article, I examine the impact of British Columbia's carbon tax on cement trade. I use quarterly data on volume of imports, exports, and net exports of cement between cement-producing Canadian provinces and the United States, as well as the world. Through a series of econometric models, findings suggest that net exports were reduced as a result of the policy. As a share of average domestic cement production, estimates point to reduced net exports between 13 and 18 percent. Further empirical investigation suggests that reductions in domestic production due to the policy stems from this trade effect, not reductions in domestic consumption. I therefore discuss policy options to address these competitiveness pressures in the cement industry.