Taxing the carbon content of imports, as the European Union plans to do and the administration of U.S. President Joe Biden is considering, can help curb the upward trend in global greenhouse gas emissions. But policymakers need to apply these levies in the right way.
By focusing on consumption-related emissions, rather than just domestic production, these taxes would target around one-fifth of import-related emissions typically excluded from calculations of nationally determined contributions of countries under the Bets on the climate of 2015. They would also be timely, given the growing gap between emissions linked to consumption and production. Since 1990, for example, US production-related emissions have increased 3%, while the country’s consumption-related emissions have increased 14% over the same period.
Carbon tariffs are not protectionist trade measures; the aim is to reduce the carbon content of imports. But the trajectory of climate change leaves no room for error in emission reduction policies. The success of the first steps taken by the EU and the United States to introduce carbon taxes at borders is therefore crucial, as these measures will serve as a model for others. In particular, policy makers must take into account certain essential principles which should govern these levies.
To begin with, a border carbon tariff should be guided by the benefit-cost calculation in favor of pricing the negative “externality” or negative spillovers – ie, carbon content – in the production of imported goods. As a rule, import levies intended to protect domestic industries increase the cost of production and adversely affect the welfare of consumers. In contrast, import tariffs that reduce carbon dioxide emissions would improve global welfare, with those gains outweighing losses from inhibiting trade. Carbon tariffs should not be seen as part of a trade war, but rather as contributing to the collaborative pricing of a socially harmful activity.
This means that policymakers must keep an eye on the primary purpose of these levies. They must design tariffs to regulate the carbon content of imported goods, rather than to protect domestic industries or provide them with an implicit subsidy. Tariffs should focus on the emissions contained in imports, not on the cost disadvantage of domestic industry or the likelihood of production moving abroad.
This is why governments should never use carbon tariffs as brutal instruments to hit imports. For example, blocking steel imports from China or India is a crude and expensive way to cut emissions from those countries compared to a carbon-linked tariff that prompts exporters to switch to less production methods. polluting.
The effect of the carbon tariff on the emissions of the exporting country depends on the ability of that country to divert its exports to other markets. To maximize global environmental gains, it is therefore essential that as many countries as possible be part of the new tariff regime. Since some importing countries like Germany and Canada, as well as some US states, have national carbon taxes or carbon trading systems, the goal could be to align the import tariffs of the country. carbon on these carbon pricing instruments.
In fact, there is a synergistic link between a border carbon tariff, a national carbon tax and national and international carbon credits, the three market-oriented carbon reduction tools. As national carbon taxes or carbon credits (or both) help reduce CO2 emissions, the actual import tariff collected would decrease because imports would contain less carbon.
Iron, steel, and petroleum products are the most carbon-intensive imports – and China, Russia, and India export the most carbon-intensive iron and steel. The main importers in this category are China, the United States and the EU. But their sources of supply are diversified: the main exporters of iron and steel to the United States are, for example, Canada, Brazil and Mexico. The large importers of highly polluting products thus have a certain power of monopsony. So it makes sense for these countries to introduce carbon tariffs first, and then for other importers to follow suit.
The logic of the carbon tariff under study in the United States is similar to that of the global minimum tax rate on corporate income on which the G7 countries recently agreed. – Project union