Carbon tariffs are a bad idea that won’t go away, and now the European Union has launched the first one, the Carbon Border Adjustment Mechanism . The goal is to pressure non-EU countries into imposing EU-level costs on carbon dioxide emissions from the production of goods. If countries such as the United States don’t meet the standards the EU sets, they get tariffed.
Since over 80% of the world’s energy comes from coal, natural gas, and oil, which produce carbon dioxide emissions, a carbon tariff is a tax on the energy that makes modern life possible. Therefore, the EU will be imposing tariffs on sovereign countries that use the energy necessary to meet basic needs and improve quality of life.
GOP SENATORS WORK TO BLOCK BIDEN'S PLANS — LITERALLY
Unhelpfully and closer to home, Sens. Chris Coons (D-DE) and Kevin Cramer (R-ND) have a new bill called the PROVE IT Act to lay the groundwork for a U.S. carbon tariff by standardizing carbon emission measurements to help levy taxes.
Yet carbon tariffs would have almost no effect on global temperatures. Even if the U.S. and every other country in the Organization for Economic Co-operation and Development eliminated all greenhouse gas emissions, it would avoid just 0.5 degrees Celsius of warming by 2100, as calculated by a Heritage Foundation model that clones the one used by the Energy Information Administration.
If that extreme scenario of zero emissions would have that small of an effect, the impact from elaborate, pricey carbon tariff schemes would be hard to measure.
In return for little to no benefit, there are plenty of costs. Carbon tariffs could derail future trade agreements the U.S. may negotiate with the United Kingdom, EU, Pacific Rim countries, and other allies. They would make these agreements more complex, add more negotiation failure points, give other countries a major say in America’s domestic policies, and incentivize special interests to game agreements for their own advantage.
In trade agreements, it’s a mess dealing with trade-unrelated issues such as carbon tariffs. The solution is that trade agreements must stick to trade. Separate issues should be treated separately.
Trade agreements are supposed to lower trade barriers. Carbon tariffs would raise barriers, becoming a new form of protectionism.
It’s also naive to believe carbon tariffs, in practice, would actually be about the environment. Countries would game tariffs to their own advantage and could easily do so because of the sheer complexity and likely impossibility of developing a system that properly accounts for global production and supply chains.
Bones of contention would include which industries would be subjected to tariffs and at what rates, with countries seeking to protect their industries and hobble rivals. They would fight over how to measure carbon emissions in ways that would put themselves at an advantage. Some countries would lobby for exemptions and preferential treatment, as the World Trade Organization does with developing countries. This has caused problems, especially with China.
Then there’s the timing. Squabbling raises tensions among allies at a time of fear that Russia’s invasion of Ukraine could expand to other countries. Liberal countries need to form alliances against China’s human, economic, and environmental abuses. A carbon tariff would give free countries an excuse to fight among themselves instead of showing a united front against Russian President Vladimir Putin and Beijing.
If the carbon tariff infighting ever gets resolved, other countries would gain significant input into U.S. lawmaking by using tariffs to trigger changes to American domestic policy. This would likely lead to massive new regulations or taxes — otherwise, carbon tariffs would be imposed against U.S. imports.
Imagine some European country with unreliable energy and declining living standards due to Green New Deal-style policies trying to get the U.S. to follow its disastrous lead.
The forgotten people here are the consumers, regular people who would pay higher prices for housing, cars, and energy, with fewer and lower quality choices. Higher prices have a disproportionate impact on lower-income households, which spend a greater share of after-tax income on basic needs such as energy.
Carbon tariffs would hurt trade, drive up prices, and lead to ever-increasing regulation and taxes, yet do little to address environmental concerns. All pain, no gain.
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Ryan Young is a senior economist at the Competitive Enterprise Institute. Daren Bakst is deputy director and a senior fellow in CEI’s Center for Energy and Environment.
