Climate Feedback

Would a carbon tariff even work?

Olive Heffernan

<img alt=“car imports.jpg” src=“” width=“250” height=“166” align=“right” hspace=“10px”//>As nations struggle to agree to international regulation of climate change, some nations – and even states – are thinking of taking the matter into their own hands, by introducing a carbon tariff on imported goods.

Conceptually, the carbon tariff is a tax placed on goods that are imported usually from other nations without regulations in place to limit their greenhouse gas emissions. Proponents of tariffs say they could protect domestic industry from competitive disadvantage and that they could also serve as a stick to motivate other countries to legislate climate policy. But others say they are merely eco-protectionism and warn that they could trigger trade wars.

French President Nicholas Sarkozy and US energy Secretary Steven Chu have both argued in favour of carbon tariffs. Now, Minnesota has legislated to place a tariff of $4-$34 per ton of carbon dioxide emissions to the cost of coal-fired electricity supplied by its neighbouring state, North Dakota. The tariff will begin in 2012 and is aimed at encouraging the switch to renewable sources of energy. North Dakota is threatening legal action against the measure, suggesting that implementing carbon tariffs will be fraught will difficulties, as predicted.

But what’s arguably more important – and most often overlooked – is the question of how effective carbon tariffs will be in achieving the ultimate goal of reducing greenhouse gas emissions. A team of researchers from Carnegie Mellon University address this topic in the latest issue of Nature Reports Climate Change [free access]. Catherine Izard, Christopher Weber and H. Scott Matthews argue that because of the impossibility of designing and implementing an effective tariff, the entire approach is flawed and that carbon tariffs should ultimately be scrapped.

For a carbon tariff on imports to be effective, they say, it would need to tax not only the emissions associated with raw materials, but also the emissions associated with the production of goods. Taking the steel industry as an example, the tax would need to cover not just the raw steel imported into the US, but the emissions associated with the production of goods such as cars. That’s because only 40 per cent of US steel imports are in the form of raw material. The remaining 60 per cent are imported as components in the billions of finished goods that US consumers and businesses purchase annually.

But there’s the rub.

To tax all of the emissions associated with goods (thus reflecting their true carbon cost), customs officials would have to know exactly how much steel was in each car or dishwasher, for example, and where and how every bit of that steel was made…a tall order, given that materials can be transformed many times before they end up in a product. For example, the authors cite data showing that about 30 per cent of the steel that comes into the US in the form of finished products was produced in countries other than the country of final export.

The carbon tariff proposed in America’s Clean Energy and Security Act, which involves taxing the emissions in raw materials and in some finished products, is the worst of both worlds, say Izard and co-authors. It doesn’t cover all embedded materials — and is therefore not optimally designed to address the climate problem — but covers enough embedded materials to make it virtually impossible to implement. They conclude:

Especially given that other measures exist to protect domestic industry, such as the proposed carbon-allowance rebates, the marginal benefits of implementing a carbon tariff do not balance the risks — most notable of which are the potential trade wars and the possibility of supplying ammunition to developing countries for refusing domestic action on climate change. The carbon tariff should be eliminated.

The full commentary is here.

Image: An estimated 60 per cent of the steel imported annually into the United States is in finished goods, such as cars. © ISTOCKPHOTO / RICARDO AZOURY


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