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‘Alarming’ Climate Crisis, U.S. Paris Withdrawal Put Border Adjustment Tax Back on the Table

Alfred Palmer/Wikimedia Commons

An “alarming” climate crisis is good reason for trade measures that penalize countries that refuse to price their greenhouse gas emissions, argues John S. Odell of the University of Southern California, in an issue brief for the International Centre for Trade and Sustainable Development (ICTSD).

“Over the years, scholars have argued that it should be possible to erect tariffs at the border against products that have not been taxed domestically for the relevant carbon emissions,” ICTSD CEO Ricardo Meléndez-Ortiz writes in an introduction to Odell’s paper. “This would allow countries imposing the tariffs to adopt ambitious climate policies at home without risking carbon leakage,” with economic activity shifting to less heavily-priced jurisdictions.

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Until now, policy-makers have recognized border carbon adjustments as a tool in their toolbox, but focused more on multilateral solutions like the Paris agreement, he adds. “The current climate urgency [2], combined with the fact that the world’s largest economy and second-largest emitter is now choosing to step aside, has however relaunched the debate.”

Odell takes a similarly urgent tone, arguing that while “efforts at multilateral cooperation should continue, it is now too late to delay plurilateral and unilateral trade measures any longer.” He calls on “each country that imposes positive net taxes on fossil fuel use at home to extend the same treatment to all goods the country imports, unilaterally if necessary.”

That would mean setting “a default carbon surcharge on an imported product equal to net fossil energy taxes (taxes minus subsidies) applied on a competing home good throughout its supply chain.”

Exports from dozens of poor and middle-income countries with low emissions would be exempt from trade measures.

The focused goal of this proposal is to help citizens in highly-polluting countries, whose mitigation effort is lagging the most, to improve their national policies,” Odell stresses. “It is well known that even in democracies, policies favoured by majorities can be distorted or blocked entirely by small minorities’ well-financed lobbying, especially in certain political institutions.” He added that trade barriers would give domestic exporters, including farmers, an incentive to campaign for market-oriented carbon abatement policies, and “their joining would amplify the campaigns’ influence enormously.”