A Note on Carbon Tariffs

Last week I attended a very useful workshop on climate change and green jobs bringing together about 25 people from labour and environmental ngos, in a generally successful attempt to find common ground around climate change policies.

I think there was real momentum around the centrality of “green job” creation to moving the climate change agenda forward.

There was less agreement, but a useful discussion, on carbon tariffs. The first order reaction of environmental ngos seems to be that these are a back-door way to impose Kyoto commitments on developing countries, which should not be penalized at this stage.

I do think the point should be made that such tariffs could be applied to accompany a carbon tax, but with application only to other developed countries. For example, if Canada put a serious price on carbon, and the US did not, a tariff could offset competitiveness and job loss implications from changes in bilateral trade – hardly an unimportant issue. It is unclear to me at this time if the EU is contemplating a carbon tariff on all trade, or with developed countries only. If the latter, there would be some significant pressure on the US and Canada to take action comparable to the EU, which would be a good thing.

I am sympathetic to the argument that developing countries should not be required to immediately match the carbon reduction efforts of developed countries (especially when the latter have done so little to date.) That said, about 25% of the carbon footprint of Canadian household consumption is embodied in imports, and a carbon tariff applied to our imports can conceptually be seen as a tax on our consumption as embodied in imports, rather than as the imposition of a carbon standard on developing countries per se. For example, the cost of Chinese production for Chinese domestic consumption would not be impacted by developed country carbon tariffs.  To make a carbon tariff less “protectionist” and a genuine climate change promotion instrument, any proceeds from imports from developing countries could be entirely rebated to fund climate change programs in developing countries.