On February 1, 2025, President Trump issued Executive Order 14193, “Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border,” (the “Canada Tariff EO”), rattling Northeastern policymakers and market participants alike. In the absence of any guidance on how this would be applied to electricity (if at all), NYISO and ISO-NE (the wholesale market grid operators in New York and New England, respectively) scrambled to amend their operating rules, lest they be unable to pay any import duties.
That initial shock has since abated somewhat. Executive Order 14193, issued subsequently on March 6, 2025, amended the Canada Tariff EO to exclude products of Canada that entered “free of duty” under the United States-Mexico-Canada Agreement. This significantly reduced the near-term risk of a new tariff regime for electricity on the Canadian border. The “Liberation Day” tariffs announced on April 2, 2025, likewise did not include Canada.
Perhaps more permanently, federal courts have since held that the president’s actions to impose tariffs under the International Emergency Economic Powers Act (“IEEPA”), including the Canada Tariff EO specifically, are unlawful. These cases have been appealed and may well make their way to the U.S. Supreme Court for ultimate adjudication.
Still, U.S. tariff policy in 2025 remains anything but certain. As we continue to monitor this volatile landscape, several initial takeaways have emerged for policymakers and market participants:
- First, even if U.S. courts ultimately deem the Canada Tariff EO lawful, significant legal and administrative obstacles stand between the implementation of that broad tariff as it relates to imported electricity.
- Second, whatever its intended aims, the Canada Tariff EO will likely result in higher electricity prices for New York and Northeastern consumers.
- Third, tariff-related contractual provisions will likely receive greater scrutiny going forward.
- Fourth, the import tariffs may impact states implementing public policy through offtake agreements with generation providers, including the New York State Energy and Research Development Authority (“NYSERDA”).
Background
The Canada Tariff EO imposed a 25% import duty on “[a]ll articles that are products of Canada” and a 10% ad valorem import duty on “energy or energy resources.” “Energy” was defined in reference to another executive order (EO 14156), which defined energy as both “energy and critical minerals” and “crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and critical minerals.”
On February 3, 2025, the president issued an Executive Order pausing the implementation of the Canada Tariff EO until March 4, 2025.
On March 4, 2025, the Canada Tariff EO took effect.
Two days later, the president issued Executive Order 14231 amending the tariffs on articles that are products of Canada to exempt articles entered “free of duty” under the terms of the Harmonized Tariff Schedule of the United States (“HTS”) sections related to the Agreement between the United States of America, United Mexican States, and Canada. This order took effect on March 7, 2025.
ISO Tariff Amendments
On February 28, 2025, with the import tariffs set to come into effect on March 4, 2025, ISO-NE and NYISO rushed to file emergency (or “exigent circumstance”) tariff revisions with the Federal Energy Regulatory Commission (“FERC”) (See the ISO-NE filing here and the NYISO filing here.) Each ISO faced significant financial risk if it was deemed responsible for paying import duties on Canadian electricity. NYISO and ISO-NE thus each needed cost collection allocation mechanism for the contemplated import duties.
On April 14, 2025, FERC granted the petitions. FERC required additional information filings but took no position on whether the imposition of the specific import duties on imported Canadian electricity was lawful.
Litigation
Lawsuits challenging the president’s tariffs proceeded in parallel. On May 28, 2025, the Court of International Trade (“CIT”) ruled that the president’s actions to impose tariffs under IEEPA are unlawful and granted a nationwide permanent injunction enjoining the enforcement of the Canada Tariff EO. The Court of Appeals for the Federal Circuit stayed the injunction pending appeal, on June 10, 2025.
In a separate case, the U.S. District Court for the District of Columbia ruled that the IEEPA does not grant the president authority to impose tariffs. The injunction in that case was limited to the two importers who had filed suit. It has also been stayed pending appeal to the U.S. Court of Appeals for the District of Columbia.
Over the next few months, these decisions may ultimately make their way to the U.S. Supreme Court for a final determination.
Takeaways
- Legal and Administrative Obstacles Remain. As noted above, the president’s underlying authority to issue the Canada Tariff EO under the IEEPA is subject to several ongoing legal challenges in the federal courts. But even if U.S. courts ultimately find that the president has such authority, there remain several key legal and administrative obstacles to the imposition of tariffs on imported Canadian electricity. Though “electrical energy” is listed as a dutiable item in the HTS, it is exempted from “entry requirements” subject to electricity-specific regulations developed by the U.S. Department of the Treasury. With respect to the Canada Tariff EO, the Secretary of the Treasury has issued no regulatory guidance regarding if and how any import duties will be applied to imports of electricity from Canada, and whether ISO-NE or NYISO would be the responsible party for the collection and allocation of such import duties, if they are applied.
- Likely Higher Electricity Costs if Implemented: Though curbing illicit drug trafficking was its stated rationale, the Canada Tariff EO could also increase uncertainty and raise prices in the Northeastern wholesale electricity markets.
- The costs for New England and New York consumers of electricity tariffs could be severe. In its February 28, 2025 filing, ISO-NE estimated that import duties could amount to between $66 million and $165 million annually.
- To the extent that imported Canadian electricity would have set the market-clearing energy price for a given market interval without import duties, the import duties would raise the price paid to all generators for that interval (not just the imported Canadian electricity).
- In theory, over time, domestic energy generation could replace imports and mitigate the price increase due to the import duties. However, it would be difficult for domestic generators to respond to that market signal. Development and construction timelines for new generation resources are quite long, and it is uncertain whether the announced tariffs will remain in place for the next few months, much less by the time such new generation will be operational. Accordingly, developers and their financing parties could heavily discount any potential revenue bump in the future when making their present-day investment decisions.
- Higher Scrutiny of Tariff-Related Contract Provisions. Import tariffs have historically not been a feature of the New York and Northeastern electricity markets. Market participants may need to pay greater attention in their current and future contracts as to how the cost of tariffs is allocated between purchaser and seller. Change in Law and Force Majeure provisions, in particular, should be reviewed to ensure they align with the intent of the parties.
- NYSERDA REC Agreement Implications. NYSERDA contracts with developers to purchase “indexed RECs” to fulfill the authority’s obligations under New York’s Clean Energy Standard and other state laws. Because the indexed REC payments are inversely correlated with indices tied to wholesale market prices, higher wholesale electricity prices would mean lower REC payments from NYSERDA to generators.
