Introducing tariffs, such as border carbon adjustments, to the climate negotiating table is both unwise and unproductive.
Today is Earth Day and the Biden administration has begun hosting its two-day international climate summit. This is a chance for serious people to engage on a serious issue; yet avoiding the policy vortex and eddy that has captured climate policy for decades is a tall task. While cynics of the president’s summit might expect hollow “pledges” to come from it, a greater risk of unproven ideas lurks around the edges.
Growing political pressure to mitigate climate change puts policy-makers in a bind. On one side is the increasing probability of public outrage at inaction. On the other is the probability of substantial costs if an aggressive strategy were to be pursued. The costs can be direct, such as from switching from fossil fuels to less-concentrated energy sources. They can also be indirect, as when one country works to limit emissions and loses business to unregulated companies in other countries.
Hope springs eternal in the human breast and international climate negotiations. But the track record of the latter is not as good. Serious negotiations go back more than 25 years, with little to show for it. Indeed, the Paris Agreement is not going to solve anything in its current form.
The latest idea in climate-policy negotiation seems to embrace the philosophy of, “If you can’t solve a problem, make it bigger.” Take, for example, the latest push to link weak domestic climate policies to tariffs as a device to encourage the reduction of emissions embodied in traded products.
These tariffs would be labeled “border carbon adjustments,” and importers would pay a tariff based on the amount of carbon emissions embodied in a particular product. This practice would shield domestic producers who are subject to higher costs as a result of their own country’s efforts to reduce emissions from import competition. It would also help a country meet an emissions target, such as one contained in a pledge from a climate summit.
The border carbon adjustment appears to make the most sense when one country has a carbon price, but its trading partner does not. In such cases, every product that is imported is subject to a tariff that is intended to pay the domestic carbon price for the embodied emissions.
Past negotiations were just a bunch of negotiators around the table, but now all of the parties have a blunderbuss pointed at their own foot. Even if they think that blunderbuss is pointed at their neighbor’s foot instead of their own. And they are all claiming, “You had better do something about the climate, because I’m just crazy enough to shoot!”
That may seem to be a counterproductive negotiation strategy. Yet tariff advocates tend to get a lot of mileage out of the idea that someone else will pay the tariff. Indeed, the leading candidate is often the “dirty” foreign producer. Or maybe they can sell the tariff as a major revenue source to help pay for, say, infrastructure. The truth is a bit less appealing: Higher prices are, in practice, passed through to consumers, who also end up with less choice.
Climate advocates are also embracing this strategy, suggesting that adding tariffs to the mix could cause countries to speed up after decades of hesitancy and adopt a more aggressive approach.
The border carbon adjustment is more of a blackboard idea than a ready-to-go solution. Assessing embodied emissions is no easy task, let alone verifying them. Today tariffs are assessed based on monetary value, which can be verified with an invoice. Good luck finding information on the invoice about emissions.
A system of tariffs will be implemented unevenly around the world, inevitably creating winners and losers and surely leading to retaliation. Imposing carbon tariffs might make the contentious arena of agricultural tariffs look tame by comparison. Oh, and yes, there will be carbon adjustments on your vegetables, too.
International supply chains are currently strained. Container rates are high. Semiconductors are scarce. Recall that one of the world’s largest ships was recently wedged across one of the world’s most critical shipping bottlenecks for one week. Adding a novel tariff blunderbuss is not likely to make the situation better. It just might grind trade to halt. While resuming climate negotiations may lead to good outcomes, foisting an unproven tariff on the table to increase urgency and leverage is not going to lead to a productive outcome.