Consequences of U.S.-Canada Electricity Tariffs

Market considerations are the primary driver of cross-border trade. Electricity flows from where it is cheap to where it is expensive. Ontario and Quebec have made heavy investments into hydroelectric and nuclear power and often carry a surplus of low-cost generation capacity. In contrast, the Northeast United States has some of the highest power prices in the country. So, while the U.S. market benefits from lower relative electricity costs, the Canadian exporter gains by selling at a relatively higher price and utilizing capacity that would otherwise sit idle.

Unlike oil or gas pipelines, electric transmission lines can rapidly flip the direction of power flow. This means the United States and Canada regularly switch roles from importer to exporter, from buyer to seller, based on dynamic system conditions and prices. In the Midwest’s Midcontinent Independent System Operator (MISO) market, it is not uncommon for power flows to switch directions within a single day. On daily, seasonal, and longer-term bases, two-way flow creates optionality and improves reliability for both nations. For example, while the Pacific Northwest and California have been a historic consumer of imported electricity from British Columbia, this relationship has reversed in recent years due to drought conditions reducing hydroelectrical output from Canadian producers.

Price and Reliability Impacts of Flow Disruptions

Though instituting tariffs on bilateral power flow undoubtedly places upward price pressure on U.S. markets, the impact will be marginal and slow to emerge. Tariffs will likely erase most of the price advantage of Canadian power relative to domestic resources, meaning markets on the U.S. side will import less and use more higher priced domestic generation. The exact upward price impact on retail electricity bills will be far less than the tariff rate of 10 percent, as imports represent only a small portion of the overall power supply in each U.S. market (see table above). Furthermore, the wholesale price of electricity, which is the specific segment impacted by tariffs, only makes up a portion of the overall rate; factors like transmission and distribution costs are additional major contributors to end-user electricity rates. Finally, the resulting upward price pressure will take time to materialize on retail bills, as rates are often fixed by utilities and suppliers on a six month, annual, or longer-term basis.

A worst-case scenario, in which an escalating trade war results in complete cessation of power flow between the two regions, would raise serious reliability concerns for both U.S. states and Canadian provinces. Reliability risks could arise in either market during moments of peak demand when imports are a key supply option. For example, though New England only imports 5 percent of total demand from Canada on an annual basis, it relies far more heavily on imports during winter peaks. In 2024, the New England power market regularly imported well over 2 gigawatts (GW) of power during peak winter demand hours, representing up to 15 percent of total demand. Absent these imports, reliability could be very difficult to maintain.

Potential Long-Term Effects of Tariffs

Beyond these short-term impacts, tariffs on Canadian electricity alter long-term assumptions underpinning U.S. infrastructure investment and decarbonization policy. The recent emergence of tariffs and threat of power flow cuts introduces geopolitical risk into the cross-border electricity trade where none has ever existed before. Transmission projects are multibillion-dollar investments which rely on stable access and prices for power. There is no doubt that this new risk environment reduces the viability of any new cross-border electricity projects under consideration by policymakers or private investors.

While future bilateral transmission projects may no longer be pursued by state governments or private investors, two major projects are underway to expand cross-border grid integration in Maine and New York. With over $1.1 billion invested, the New England Clean Energy Connect is in the process of establishing 54 miles of new transmission lines to bring 1,200 megawatts (MW) of power from Quebec to Massachusetts via Maine. New York has invested $6 billion to build the nearly complete Champlain Hudson Power Express transmission line, which spans 339 miles underground to bring 1,250 MW of electricity from Quebec to the New York City metro area. With billions of dollars already invested and construction well underway, these projects are unlikely to be halted. But with the current risk of tariffs on bilateral power flows across these wires, transmission contracts may require renegotiations with state authorities in New York and Massachusetts.

For the Northeast in particular, upward pressure on electricity prices and new reliability risks adds to a worrying overall energy outlook. The region already suffers from the highest prices in the country outside of California, Hawaii, and Alaska. Many of the states, with Massachusetts and New York at the forefront, have implemented ambitious decarbonization targets but now face a rapidly narrowing option set. Offshore wind deployments are far behind schedule and increasingly costly, while further scaling of carbon-free electricity imports from Quebec and Ontario has been called into question.

Conclusion

The fundamental economics of electric power favor integration. Larger grids create more options and redundancies which improve reliability and economic efficiency. Lower costs for consumers result from shared reserves and the use of lowest cost generation. For these very reasons, billions of dollars of investment have integrated U.S.-Canadian electricity systems over multiple decades. This system gives North America a strategic energy advantage that is the envy of Europe, China, and powers worldwide. Policymakers on both sides of the border would do well to carefully weigh this valuable asset against other policy priorities.

Cy McGeady is a fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Bridgette Schafer is an intern with the Energy Security and Climate Change Program at CSIS.