5 ways tariffs on Canada could affect New England energy prices

Editor's Note: Following a 30-day pause, the Trump administration is expected to impose tariffs on Canada and Mexico on Tuesday, March 4.

On Monday, U.S. Commerce Secretary Howard Lutnick said, "There are going to be tariffs on Tuesday on Mexico and Canada. Exactly what they are, we're going to leave that for the president and his team to negotiate." He described the situation as "fluid."

This article was published last month, but the information on how tariffs on Canada would impact New England remains accurate.

Brace yourself. If President Trump’s tariffs on imported goods from Canada take hold, experts said the cost of energy and, well, pretty much everything else, would almost certainly go up.

The economic effects would be felt all over the country, but they could be most acute for New England, which relies heavily on Canadian energy exports.

“New England, specifically, will be very, very hard hit by these tariffs,” said Dan Sosland, the president the nonprofit Acadia Center.

Trump has threatened a 10% levy on Canadian energy products and 25% for other goods. According to the New England-Canada Business Council, New England imports about $10.2 billion of heating oil, diesel fuel, natural gas and electricity from Canada annually. Given the region's dependency on our neighbors to the north, Sosland likened the tariffs to building a big, disruptive wall in the middle of somebody’s house.

“It’s unclear what the purpose of that would be,” he said.

Trump has said tariffs on Canada, as well as Mexico and China, are meant to encourage those countries' governments to reduce illegal immigration, stop the flow of fentanyl across U.S. borders and address trade imbalances.

A 10% tariff on Chinese goods took effect Tuesday morning. But the tariffs on Canada and Mexico were put on hold for a month following phone conversations between Trump and their leaders.

If Trump does establish a tariff on Canadian energy as proposed, here’s how it could affect New England:

Energy experts said they’re confident Trump’s tariff would immediately push up the cost of heating oil, propane and other delivered fuels. New England is uniquely dependent on these fuels, and most of its supply comes through Canada.

How dependent? About 82% of all U.S. households heated with fuels like oil and propane are concentrated in the Northeast. In New England alone, more than 2.3 million households — many in rural and low-income communities — use these fuels.

Heating oil prices have been relatively flat this winter, but it's a commodity prone to price spikes when market conditions change. It also tends to be the most expensive form of home heating in the region.

A 10% tariff on imports from Canada doesn’t necessarily translate to a 10% increase in the price per gallon, said Michael Ferrante, president of the Massachusetts Energy Marketers Association, an industry group for heating oil and propane suppliers.

If the price of diesel fuel also rises — as many experts expect — the added overhead costs could drive retail fuel prices even higher.

“We’re really concerned that the price of fuel will go higher, but we don’t know for how long and what that will be,” Ferrante said.

On a more positive note, he said the 30-day delay on Canadian tariffs could be good for New England consumers because the region will be closer to the end of winter heating season should they go into effect.

The warmer weather "will help soften the blow of any tariffs," he said.

Economists and politicians have warned for weeks that consumers will feel any tariff on Canadian energy at the gas pump. And New England, where much of the gasoline and diesel used comes through a refinery in New Brunswick, will be no exception.

Patrick De Haan, an analyst with Gas Buddy, predicted gasoline prices in New England could rise anywhere from 15 to 30 cents a gallon within the first couple of weeks of the levy taking effect. (As of Tuesday afternoon, the average gasoline price in Massachusetts was about $3.03 per gallon — about the same as a month ago, and slightly lower than a year ago. The average price of diesel was $3.81, down about 30 cents a gallon from last year.)

Prices at the pump are often front of mind when people think about rising energy costs, De Haan said, but diesel, which is used by trucking companies, can have even broader effects.

If it costs more to deliver pallets of milk to the grocery store, for example, the price of that milk will be higher.

De Haan said gas and diesel prices usually rise in early spring, so seasonal fluctuations, not just tariffs, can contribute to higher prices.

The proposed energy tariff's effect on electricity prices would depend on how long it lasts, experts said. While wholesale electricity rates fluctuate regularly, the rates for most homes and businesses are set every six months.

"I do not believe that consumers in New England are going to start seeing higher electricity prices” as soon as tariffs take effect, said Dan Dolan, president of the New England Power Generators Association.

But, he added, over time, a tariff would start to impact utility bills.

New England imports about 5-6% of its electricity from Canada — though some areas like Vermont and parts of Northern Maine import more. If the price of that imported electricity remains high, Dolan said, it will be reflected in the prices utilities eventually pass on to consumers.

Because there is so much uncertainty about how a tariff on imported electricity would be implemented, and how long it may last, experts said it’s difficult to predict the impact to the average customer’s utility bills.

In a statement, ISO-New England, the regional electric grid operator, said it “cannot speculate on what, if any, impact these actions will have on wholesale electricity prices or the level of imports into the region.”

Most of the natural gas used in New England comes from domestic sources and travels through pipelines. Still, the region imports a small but significant amount of natural gas from Canada. Almost all of that is liquified natural gas that comes through the St. John terminal in New Brunswick, where it’s turned back into a gas and sent through a pipeline down to New England.

Dolan, with the New England Power Generators Association, said the price of liquified natural gas is always volatile. A 10% increase would be within the normal range of fluctuation, he said, and might not be immediately noticeable to the average household.

Beyond the short-term effects, Dolan said he's concerned the tariff would create an incentive for some power plants to switch more often from burning natural gas to non-Canadian oil. That could increase electricity prices and climate pollution, since burning oil emits more planet-warming pollution than natural gas.

The energy experts who spoke with WBUR agreed on two things: First, no one has a crystal ball. Energy markets are complicated and volatile: They shift based on geopolitics and the weather.

“We're in about as uncharted territory as I've ever seen,” Dolan said.

And second, if energy rates rise, the prices of all goods will likely follow.

“Once energy prices go up, everything is affected by it,” said Sosland of the Acadia Center. “Egg prices go up, housing prices go up, the cost of programs go up. And that starts to have a trickle [down] effect, reducing employment and productivity.”