Unless you have a taste for fine French Champagne, a tawny port from Northern Portugal, or some other imported European adult beverage, a threatened 200% U.S. tariff on those products likely wouldn’t hit quite as close to home as the electricity tariffs over which political leaders in the United States and Canada continue to spar.
The sparring began in January when the Trump administration announced a sweeping set of levies on goods from Canada and Mexico, including a 10% tariff on electricity imported into the U.S. from Canada. It then escalated in March with an announcement by Ontario Premier Doug Ford that the province would assess a 25% surcharge on electricity transmitted across its borders into three U.S. states: Michigan, New York and Minnesota.
Ford suspended imposition of the surcharges after the Trump administration backed off some of its tariff threats. But the exchange showed that in the escalating political battle between the U.S. and Canada over tariffs, no product or market is above the fray, not even electricity, a product on which the two countries have been closely aligned for decades. The U.S. and Canadian power grids are integrated to some extent, especially along the countries’ shared border.
What happens next in the ongoing confrontation is anyone’s guess.
“For the better part of two decades, Canada has exported significantly more electricity to the United States than it imported,” the U.S. Energy Information Administration said in a report last fall.
However the tariff fight ultimately shakes out, it’s worth considering how new electricity tariffs and the potential decoupling of the cross-border electricity market could impact businesses, consumers, and the energy companies that comprise the electricity value chain.
For energy companies—those focused on oil and gas production, renewable energy production, power generation (including nuclear energy, which the Trump administration seems to favor) and infrastructure (pipeline, transmission, storage, etc.)—tariffs on Canadian electricity would have broad ramifications.
One likely result would be an increase in domestic demand for U.S.-produced electricity to make up for any drop-off in Canadian imports. That in turn could create opportunities to produce and deliver more energy domestically, by stepping up exploration and production of oil and gas, and developing more generation and storage facilities, along with additional infrastructure to bring new supplies to market.
The result could be new solar or wind installations, for example, or new gas-powered and nuclear-powered electricity-generation plants, new large-scale electricity storage installations, and expanded drilling for natural gas.
With the transition to green energy, utilities are making fundamental changes to their business, decarbonizing power grids, modernizing their systems with AI, and developing new ways of driving revenue.
Higher-priced Canadian electricity could also lead to formation of new public utilities, electricity co-operatives, and energy consortiums that enable U.S. communities to better control their energy destinies by lowering their reliance on investor-owned utilities and more expensive electricity from north of the border.
These publicly owned utilities could even seek to develop their own power sources in order to diversify and decarbonize their supply portfolios with energy produced closer to home, in their own facilities, as some municipalities are looking to do with renewable energy.
New electricity tariffs also could provide the impetus for public utilities and co-ops to mobilize on grid modernization projects to bolster reliability and access to renewable energy.
As promising as these opportunities may seem, there are complicating factors to consider in the electricity tariff equation. Developing new power sources takes time, money and public support, and specific projects may lack any or all of these. Nurturing a new electricity-generation project from scoping, through permitting, construction and launch, can take years.
How do commercial and residential electricity users get by in the meantime? Do they have any choice but to keep buying Canadian electricity and absorb the higher cost?
Decarbonization is another major consideration. While the Trump administration clearly favors investing in domestic oil and gas over renewable energy, building more natural gas-powered power plants not only would be more difficult in certain jurisdictions under current law, it also would perpetuate a reliance on higher-polluting energy sources. That runs counter to global and national climate commitments as well as the carbon-reduction commitments made by individual states, communities, and companies.
As complicated and volatile as the tariff issue has become, and as much angst as it’s causing across borders and industries, perhaps the two sides would be wise to try settling their differences over a nice bottle of Bordeaux.
