Why and how US and Canadian energy markets are so deeply intertwined

The United States and Canada are deeply dependent on each other for energy. Canada supplies half of all petroleum imports to the U.S., making it the biggest foreign supplier of oil. Additionally, Canada is the only direct foreign supplier of electricity to the U.S., with 34 major transmission points moving power across the border. In 2024, 84% of Canadian oil production and 76% of its electricity production were exported to the U.S. This interdependence means that tariffs on energy, such as the 50% tariffs imposed by the U.S. and Canada in 2026, were excluded because they would severely damage both economies. For example, Canada could disrupt electricity supplies to the U.S., potentially leaving thousands of Americans without power, as threatened by Ontario’s Premier Doug Ford in August 2026.

The energy connection between the U.S. and Canada dates back to the 19th century, particularly around the Great Lakes Basin, where energy from the Niagara Falls and the St. Lawrence River was shared by both nations. During World War II, the two countries began integrating their energy systems as part of joint security efforts to protect North America. This cooperation was formalized in 1940 with the Ogdensburg Declaration and in 1941 with the Hyde Park Declaration, which laid the groundwork for future economic and military collaboration. These early efforts set the stage for the deep integration of energy markets that exists today.

After World War II, Canadian and U.S. businesses explored the benefits of sharing production and manufacturing operations. While early attempts at integration faced opposition from nationalist voices, the Auto Pact of 1965 marked a turning point. This agreement eliminated tariffs on cars, trucks, and automotive parts, allowing Canadian manufacturers to compete directly with U.S. producers. By 1989, the two countries signed a full-scale free trade agreement, removing tariffs on goods crossing the border. This agreement expanded to include energy markets, and in 1992, U.S. regulations were adjusted to allow Canadian companies to sell excess energy to the U.S.

The North American Free Trade Agreement (NAFTA), signed in 1994 and including Mexico, further integrated the production, processing, and distribution of goods and services across all three countries. However, it was the interconnection of energy infrastructure that truly merged the U.S. and Canadian economies into a single energy market. Today, four major U.S. electrical grids rely on imported power from Canada: those serving New England, New York, 15 states in the Midwest and South, and California. There are also over 40 natural gas and petroleum liquids pipelines connecting the two countries. Despite this two-way trade, the U.S. runs an energy trade deficit with Canada, meaning it imports more energy from Canada than it exports.

The integration of energy markets has had significant local impacts. For example, Maine gets nearly 30% of its electricity from Canada, with the northern electrical grid operated by New Brunswick Power Corp., serving close to 60,000 Mainers. Maine’s electric grid is largely owned by foreign interests, including ENMAX, a municipally owned utility from Calgary, Alberta, and Iberdrola, a Spanish company that owns Central Maine Power. Canadian energy also reaches deeper into the U.S. through deals like one secured by Hydro-Québec in 2025, which uses Maine as a corridor to supply clean energy to Massachusetts. Hydro-Québec is owned by the government of Quebec.