Carbon Border Tax Is Outside the Venn Diagram of Compromise

COMMENTARY Energy Economics

Carbon Border Tax Is Outside the Venn Diagram of Compromise

May 24th, 2022 4 min read
COMMENTARY BY
Katie Tubb

Research Fellow, Center for Energy, Climate, and Environment

Katie Tubb is a research fellow for energy and environmental issues at The Heritage Foundation.
Sen. Joe Manchin reacts to a question about carbon tax as he walks back to his office following votes at the U.S. Capitol on September 29, 2021 in Washington, D.C. Chip Somodevilla / Getty Images

Key Takeaways

A carbon tax would weigh down American consumers and businesses, for no environmental benefit.

Carbon tariffs don’t make “green” products less expensive or better performing—they just increase the costs of conventional, more affordable competitors.

The environmental benefits of a carbon tariff are inconsequential, no matter what one thinks about global warming.

For years, the idea of a carbon tax has been a nonstarter for Americans in both parties. And for good reason—while it would raise a pretty penny for a federal government addicted to spending, a carbon tax would weigh down American consumers and businesses, for no environmental benefit.

Given that nearly 80% of Americans’ energy needs for heat, power, and transportation are met by energy resources that would be taxed, it’s not hard to see the exorbitant costs of such a policy.   

Now, some in Congress are contemplating such a tax on imported foreign goods, hoping it’s not as politically “lethal.” Known as carbon tariffs or carbon border adjustments, the policy is getting some press time, with a handful of Republicans entertaining the idea.  

Generally speaking, border carbon adjustment proposals place a tax or tariff on imported goods whose production emitted greenhouse gases, whether directly or indirectly through their supply chains.

While this would include every or nearly every product that crossed into U.S. markets, policies tend to focus on energy-intensive products like steel, aluminum, cement, and chemicals or large consumer products like cars.

On its face, this is protectionism that would easily invite retaliation by trading partners and a tacit acknowledgement that regulations on American companies are making them less competitive. So, advocates have sought ways to show a carbon border adjustment isn’t treating imported goods unfairly.

This requires some “creative” accounting, to say the least, since Congress has repeatedly rejected domestic carbon tax schemes. Ideas run from exempting countries whose industries have similar “emissions profiles” as in the U.S., to attempting to conjure an implicit price on domestic carbon dioxide emissions from the variety of local, state, and federal climate policies.

That’s often the trouble with domestic carbon taxes and their international-facing counterparts, carbon tariffs—while they sound straightforward in theory, the reality is a bureaucratic maze.

For example, consider how many times steel crosses borders on its way to becoming products consumers will purchase, whether a bolt, automobile, or I-beam for a bridge. Complexity is no friend to transparency, and the chances of special interests seeking carveouts and exemptions are high—in addition to the bureaucracy needed for compliance, auditing, and litigating.

This is to say nothing of the negative impacts a carbon tariff would have on U.S. businesses and their customers.

Proponents argue that taxing imports for their greenhouse gas emissions will make U.S. companies more competitive. It’s crafty logic. Consider this—imagine a race between me and five-time Olympian Allyson Felix. While I may provide some entertainment value, I don’t stand a chance. If I were to tie her shoelaces together, I’m still not the faster sprinter—I’ve just hobbled the competition.

Likewise, carbon tariffs don’t make “green” products less expensive or better performing—they just increase the costs of conventional, more affordable competitors by tacking on a tax.

Of course, if the “greener” products offer more compelling value, customers don’t need the nudge from bureaucrats to figure that out. Being able to buy components from the most competitive companies around the globe allows businesses to provide their customers the best, most affordable service.

Some also think a carbon tariff will force countries like China to finally get serious on climate policy. However, and especially in light of the ongoing energy price crisis, countries and businesses are showing every day that they are more interested in affordable energy and products than in paying a green premium.

This is proving true whether considering China’s interest in buying Russian oil, climate warrior Germany’s decision to hold onto coal, or the choices of individual companies looking to keep costs low for customers in the face of rampant inflation. Actions speak louder than political climate aspirations.

Perhaps the bottom-line question is whether this is good environmental policy. But just like a domestic carbon tax, the environmental benefits of a carbon tariff are inconsequentialno matter what one thinks about global warming and the merits (or lack thereof) of mitigating carbon dioxide.

The carbon tariff idea has resurfaced of late with the intent, as stated by Sen. Joe Manchin, D-W.Va., of “getting everyone together on some ideas … on how we can all work together.” It’s hard to see how a carbon dioxide border tax is one of those ideas toward any productive end helping Americans.

However, where the Venn diagram very much overlaps is regulatory reform—another topic that reportedly is on the table.

If the likes of Ezra Klein and The Heritage Foundationconventional energy companies, and renewable energy companies all agree that it’s too hard to build things in the U.S., surely Congress can get there too and with far greater effect and far less hand-wringing.

Getting into the details of regulatory reform may not sound as exciting to politicians as a revenue-raising carbon tariff, but it would actually get at issues where the government itself is “tying the shoelaces” of American businesses trying to compete in a global race.

This piece originally appeared in The Daily Signal