Democrats on the Senate Budget Committee have agreed upon a $3.5 trillion budget resolution full of ambitious social and environmental spending. Now all they need are the votes to pass it — and $3.5 trillion.
Enter carbon tariffs, an idea that’s attractive to Senate Democrats, and not just because they could use the money. We’re running a one-way experiment with the only climate we have, and that’s a bad idea. Taxing imports that are carbon-intensive to produce sounds like an easy way to introduce better incentives, especially for developing countries eager to emulate China’s coal-fueled economic boom. Unfortunately, carbon tariffs are a political gimmick that won’t solve the real problems they ostensibly address, and might well introduce new ones.
Such tariffs have been proposed before, usually as part of a broader plan to slap a price on carbon emissions. Europe just announced a similar rule, intended to level the playing field between domestic firms who must comply with E.U. emissions restrictions and foreign competitors who don’t.
Alas, there are a few small problems with making this idealized vision of carbon tariffs a reality.
Such taxes are less a revenue juggernaut than an administrative nightmare: How do you determine the carbon “cost” of a product in a country where carbon isn’t priced? Nor do they necessarily drive all that much environmental cleanup, because so much of what a country such as China produces is destined for its domestic market or consumers in countries with similarly lax environmental standards.
It’s even more challenging in the United States, which doesn’t currently have a domestic carbon price or the bureaucracy to administer one. Certainly Democrats aren’t proposing one in this package. That makes this look less like a way to drive environmental cleanup than what Adele Morris, an environmental economist at the Brookings Institution, calls “a vehicle for protectionist mischief.” The World Trade Organization is keenly sensitive to such vehicles and is likely to throw up roadblocks at every turn.
Given that our domestic producers aren’t being unfairly burdened with a domestic carbon-pricing scheme we don’t have, there’s no real excuse for this policy. But there might be, if Democrats first pursue a real environmental and fiscal policy that could produce actual results: a domestic carbon tax.
A domestic carbon tax could raise significant revenue, though to be politically viable it would probably have to be rebated to voters rather than spent on new priorities. A domestic carbon tax is also just good economics: Global warming is a genuine cost of emitting carbon, but right now it’s not included in the price of the goods and services we consume. Economics 101 tells us that when the cost of something is artificially low, you get too much of it.
But pricing carbon isn’t just a way to raise cash or pursue some cold ideal of economic efficiency. A broad carbon tax — rather than the hodgepodge of environmental subsidies and mandates we’ve got — is the only way we’re ever going to find low-carbon solutions that emerging markets will willingly adopt. And with China now emitting twice as much as the United States, and growing, we desperately need a global solution.
We will never solve climate change if our policy remains largely focused on persuading or forcing Americans to consume less stuff. Environmental asceticism clearly has very limited political appeal in this country, and it will have even less abroad for consumers eager to attain lifestyles Americans take for granted.
What’s necessary is a way to live just as lavishly as we do now while producing a tiny fraction of our current emissions. The only thing that will persuade developing countries to skip the coal plants and the gasoline engines and all the rest is green alternatives that are cheaper and better without the elaborate system of taxes, subsidies and mandates that rich-world governments are using to herd their population toward carbon reduction.
If you want a laser focus on controlling costs and appealing to consumers, it’s probably not going to come from government, which always has priorities other than maximum value for money. Case in point: carbon tariffs, which aren’t just difficult to implement without domestic carbon pricing, but exactly backward, if we’re trying to decarbonize the globe. Industries protected by tariffs tend to be less efficient than their competitors, and “less efficient than competitors” is hardly a model that will appeal to developing countries.
It’s markets that tend to seek the absolute lowest-cost way to do something. That’s why companies pollute, after all: It’s cheaper. If we change their incentives, forcing them to bear the cost of their emissions, they’ll figure out how to maximize production with minimal environmental impact.
So forget about the greenwashed protectionism and unleash the power of market competition. If we want a low-carbon future that can sell itself to the rest of the world, we should give American companies every incentive to build it — and then stand back and let them show the world how it’s done.
Distributed by The Washington Post Writer’s Group.