• Carbon Tariffs - International Trade and Climate Change: Boon or Bane

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The idea of “carbon tariff”, a tax on import from countries which are not taking similar environmental measures as the importing country, is gaining support. The United States is considering its own cap-and-trade system to reduce domestic emission levels.

US Energy Secretary stated the idea of carbon tariffs as being essential to defend the international competitiveness of American firms, expressing concern about other countries having an unfair trade advantage if US reduces its carbon emissions but they do not.

It is a fact that the planet can sustain only a limited amount of carbon emissions but what is not being decided among scientists is how to divide the emissions among different countries. This is a vital issue in determining international trade relations and addressing international climate-change issues. Imposition of carbon tariffs will be ineffective if the distribution of carbon emissions is not clear.

The Boxer-Lieberman-Warner bill of US is an example of a strong start toward cutting global warming pollution and investing in a clean and secure energy future. It determines whether another country’s environmental regulation is comparable to the US (and thus exempt from the carbon tariff). The bill contributes towards controlling emissions by freezing everyone at their current level of greenhouse-gas emissions and requires that countries start reducing emissions from these levels.

Other countries opting for a similar regulation is a cause of concern. For example, if China chooses to implement a similar bill, it could apply carbon tariffs to any country that has greenhouse emissions higher than it (US, Canada, and the European Union). India could move to adopt a policy that would give fewer future emission rights to countries who have already made significant contributions to emissions now.

Thus, conflicting interests of countries across the globe could potentially destabilize the global economy without arriving at a useful climate-change solution. The climate-change problem would remain unsolved as each state would choose its own emission levels and work for its own benefit even as the emission levels increased, with the planet still having unsustainable levels of greenhouse gases. Moreover, carbon tariffs would amount to increasing barriers to trade which is detrimental to the global economy, and more so in these times of financial crisis it could amount to protectionism by the countries.

Therefore, a solution to the problem of climate change should be addressed in a multi-lateral way and not unilateral declarations backed by carbon tariffs. The World Trade Organization would take a long time to resolve such issues which involve a complete change in international climate-change policies among countries. The countries should focus on achieving an open international trade and an effective international climate change agreement.

Carbon tariff is detrimental to the global economy as it may lead to a regressed international trade scenario without even leading to an adequate solution to global warming.