Carbon Tax-Damned If You Do & If You Don't

The Economist July 17th 2021 pp15-16|Leaders|Climate Change|”Carbon and capture” “In principle carbon border taxes are a good idea. In practice they could be a gift to protectionists.”

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The idea is simple. Levy taxes on imports as a way to avoid lower prices brought on by environmentally unfriendly-production and -logistics. It is well known that low cost locales can achieve a lower price point partly by skirting good environmental practices. Because other costs of production are might be lower as well, these manufacturers can afford to transport goods over long distances, a process that contributes to greenhouse gas as well.

Granted the idea of taxing polluters is simple but fairly instituting such a policy is difficult. Regardless, to a limited degree some environmental taxes are being assessed and collected.

What do we know so far ?

“Global greenhouse emissions covered by taxes” (Percent) has increased from about 5% in 2005 to about 15% in 2020 and in 2021 to about 20%.

While some argue that environmental taxing is a veiled form of protectionism most agree that environmental effects are not just a local concern but rather a global concern. It follows that environmental protection is then in everyone’s best interest and should not be circumvented to achieve a competitive advantage.

According to the Environmental Defence Fund “market forces would find the cheapest ways to cut emissions.” “Were carbon prices global, the cost of fulfilling the Paris agreement on climate change could fall by 79%.”

Of course, this all seems like “a pipe dream.” But some are moving forward with China leading the way but the commentary is that their “emissions-trading system” will have “permits [that] will be far too cheap.” The EU is acting as well but their efforts are aimed at selected industries making products like “cement and fertilizer.” America is reportedly considering carbon border taxes. Clearly, the problem in formulating solutions are “thus not moral or economic but practical and political.” How can adjustments be fairly and accurately devised? Some see an incumbent advantage as lower-priced rivals will be overwhelmed by bureaucracy required to allow their imports.

It is noted by The Economist editors, that failing to act on pricing carbon “may be the greatest danger of all.”