Article Against the Carbon Tariff

Scrap the carbon tariff

Catherine Izard, Christopher Weber & Scott Matthews

Despite their political popularity, carbon tariffs will be next to impossible to implement effectively, and as such will do little to solve the climate problem.

In every US climate policy negotiation thus far, a major sticking point has been the issue of economic competitiveness. If the US, or indeed any country, independently imposes a price on carbon — through a cap-and-trade system or a carbon tax, for example — domestic industries automatically face higher costs than their international peers and could be at a competitive disadvantage. Rather than pay these costs, of course, US industry could relocate to countries without mandatory emissions targets. This 'carbon leakage' could cost the US jobs while failing to reduce global emissions, a lose–lose scenario.

For the majority of US industry, the introduction of climate policy would have a negligible economic impact. There are exceptions, however, most notably energy-intensive industries such as steel and cement. Fortunately, several policy mechanisms can be used to protect their competitiveness. The proposed US climate bill, America's Clean Energy and Security Act1, uses two: first, the bill aims to rebate the increased costs of carbon emissions to energy-intensive industries through free allocation of emissions allowances. Second, US industries that import energy-intensive goods from countries without a price on carbon are required to purchase emissions allowances for those goods equal to what they would have paid had the imports been manufactured domestically. This tariff, a type of border tax adjustment, ensures that importers do not gain a competitive advantage over other domestic industries. The idea of implementing border adjustment mechanisms is now gaining popularity in the European Union, where France and Germany argue it would protect domestic industry if other nations do not agree to cut their emissions.

But there are numerous arguments against implementing carbon tariffs: they may trigger a trade war with damaging consequences for domestic industry; they target emerging economies whose cooperation is vital for global climate policy; they protect only industry on the domestic market; and according to the World Trade Organization2 they may be illegal, depending on how they are implemented. These thorny issues have been discussed at length elsewhere3, 4, 5. Supporters of carbon tariffs claim that they have two main advantages: first, they protect domestic industry from competitive disadvantage. Second, because the tariffs apply only to countries without a price on carbon, they are a 'stick' to motivate other countries to legislate climate policy. Surprisingly, given the complications associated with a carbon tariff, few have asked whether the arguable advantages can ever be realized. Because of the impossibility of designing and implementing an effective tariff, we argue that they cannot.

An interesting article that needs a proper response. *scribbles it on the list* *sighs* Nearing completion of the Medea critique though. Thank all that's good and light. It'll need a revision, but its already 11 pages. Hopefully, it won't grow beyond that. Then Xenosuchus and a handful of other articles that I need to finish.