The Impact of Tariffs on the Energy Transition
Note: What follows is an opinion piece from a Canadian HRAI partner
The energy transition in North America is facing a major challenge: the need to double the power grid by 2050. This expansion is crucial to support both economic growth and the digitalization of industries while enabling the shift to electrification. As Canada and the United States work towards this goal, the affordability and availability of key electrical products will be critical. However, tariffs on these essential products threaten to slow down progress, increase costs and ultimately delay climate action.
Competition for supply is fierce.
The demand for electricity growth is not unique to North America. Like the demand for vaccines during COVID, the entire world is going through the transition and digitalization at the same time. Grids must expand and modernize at an unprecedented pace. Current supply chains for electrical infrastructure materials, including transformers, switchgear, and transmission cables are already strained. Lead times for transformers are up to 4 years long and prices are rising, making affordability and accessibility a central concern for policymakers and industry leaders.
The Role of NAFTA and Integrated Supply Chains
The North American Free Trade Agreement (NAFTA) and subsequent United States-Mexico-Canada agreement (USMCA/CUSMA), were designed to enhance trade and economic cooperation across the three countries while making the region more competitive globally. The energy sector, including the electrical infrastructure supply chain, is deeply integrated across North America. Each country contributes with their unique strengths whether it be resources, labour or innovation. By working together, North America has built an efficient and cost-effective supply chain that supports the energy transition. However, tariffs disrupt this balance, driving up costs and creating inefficiencies.
Tariffs: A barrier to affordability and speed
Tariffs on electrical products and raw materials, such as steel and aluminum increase costs for manufacturers and utility companies. These added costs are ultimately passed on to consumers and businesses, making the energy transition more expensive. In turn, higher costs will lead to project delays, as governments and private investors struggle to secure sufficient funding.
Tariffs also disrupt supply chains, forcing companies to re-route products and seek alternative suppliers outside North America. This not only increases costs but also extends delivery timelines further slowing the grid expansion.
Economic and Environmental Consequences
A slower energy transition due to tariffs would have serious economic and environmental consequences. Delays in grid expansion and electrification would jeopardize economic growth of industries and infrastructure that rely on electricity. At the same time, continued reliance on fossil fuels would increase greenhouse gas emissions, making it harder for Canada and the US to meet climate targets.
A call for trade cooperation
To ensure a successful energy transition, policymakers must prioritize trade policies that support affordability and efficiency. Removing tariffs on critical electrical products would allow North America to maintain a competitive supply chain, accelerate grid expansion and meet climate targets on time. Given that the entire world is undergoing this energy transition simultaneously, North America must act strategically to avoid self imposed barriers to ensure its energy security and economic prosperity.
Back to Newsletters
