Academics and environmental advocates keep calling for carbon tariffs, touting their benefits for sustainability. Yet these calls fall on deaf ears with policy-makers. Instead of renewing their calls over and over again, advocates of carbon tariffs need to figure out what really keeps governments from getting on board.
Stefan Pauer, PhD Candidate in Law, UBC
But first let's back up a little. What are carbon tariffs, and what would they be good for?
Just like other tariffs, carbon tariffs levy a charge on goods crossing the border. While ordinary tariffs are based on the value of a good, carbon tariffs are based on the amount of greenhouse gases emitted during the production of a good. For example, the charge for a tonne of cement would be based on the amount of CO2 emitted during its production. The more pollution that tonne of cement has caused, the higher the charge.
Why would you do this? First, the idea is to strengthen domestic carbon pricing by extending it to goods that are traded across the border. This way, domestic industries (like the cement industry in the example above) can be protected from competition in other places that do not have a domestic carbon price. This could help build political support for a domestic carbon price and/or enable deeper emission cuts where a domestic carbon price is in place already.
Second, carbon tariffs can counter the problem of "carbon leakage". This term refers to the shift of industrial production (and thus emissions) from one place to another. Leakage can cancel out emission reductions achieved by a domestic carbon price, but carbon tariffs can counter this phenomenon and thus make a domestic carbon price even more effective in reducing emissions.
Third, carbon tariffs could perhaps motivate other countries to implement their own climate policies or join international efforts to cut emissions.
Sounds pretty good, doesn't it?
But here's the puzzle: governments almost never use carbon tariffs in practice. And that's despite the fact that more and more carbon prices are being established around the world. Just recently the World Bank reported that about 40 national jurisdictions and over 20 cities, states and regions are putting a price on carbon. But almost none of these use carbon tariffs.
So why is that? Occasionally academics have theorized as to the reasons carbon tariffs are not implemented more widely in practice. But no one has investigated this puzzle specifically while taking into account actual decisions taken by policy-makers on the ground. This is why I have set out with my research to identify, together with policy-makers and other stakeholders, the actual barriers that keep practitioners from adopting carbon tariffs.
Finding an explanation for this puzzle is crucial, because carbon tariffs could become increasingly important in the future. So far the global response to climate change has been characterized by fragmented and generally uncoordinated action. Climate policy circles consider it unlikely that the 2015 UN Climate Change Conference in Paris will bring about a dramatic change.
Why this matters for Canada
In Canada, carbon tariffs are also likely to gain in importance given the openness of our economy. Trade is equivalent to more than 60% of Canada's annual gross domestic product, and one in every five jobs is directly linked to exports.
In BC, the province's government froze its carbon tax in 2013 citing competitiveness concerns. But in view of BC's legislated long-term emissions reduction target, the province's mitigation action will need to become increasingly aggressive in the decades to come, especially if the envisaged expansion of the Liquefied Natural Gas industry is to be realized.
Therefore, whether at the provincial or national level, competitiveness concerns are at the forefront of the political discourse on climate policy. And carbon tariffs are among the most promising options to alleviate these concerns.
Given the urgency to address climate change, we need to investigate all options that can lead to cutting global emissions. But for far too long, academics and environmental advocates have put forth their well-intentioned calls for carbon tariffs but failed to take into account policy-makers' reservations about these measures.
Before we can effectively implement, or rule out, carbon tariffs as a mechanism to mitigate climate change, we need to understand why policy-makers are reluctant to use them.