Geoscience Reference
In-Depth Information
Korea complied with the treaty and had a domestic CO
2
price of at least
$25 per ton of CO
2
, its trade would be treated as normal international
commerce with no border tax adjustments.
This all sounds simple, but in reality, the border tax adjustment
regime would become terribly complicated for noncomplying coun-
tries. How exactly would we calculate the carbon content for imports?
Should we apply the tax to all products? Imports of oil or natural gas
would be easy to tax at the border, but different kinds of coal have dif-
fering carbon contents, and countries would need to deal with that.
Conventional goods would be even more diffi cult. If we included cars,
would we count the CO
2
that comes from the coal that goes into the
steel that goes into the cars? Trade specialists warn that relying on
trade sanctions would open the door to protectionism, which is al-
ways lurking in the shadows looking for excuses to keep out foreign
goods and services.
In analyzing the impact of the border tax adjustment enforcement
mechanism, we need to consider that trade sanctions affect only goods
in international trade, while much of a country's CO
2
emissions come
only from domestic production. For example, virtually none of the en-
ergy used by U.S. residences, in transportation, or in electricity genera-
tion enters directly into international trade. Yet it forms 95 percent of
U.S. CO
2
emissions. To look at this from another angle, consider the
question of reducing U.S. CO
2
emissions from coal-fi red electricity
generation. Studies indicate that this would be the single most effi cient
way to reduce emissions. But the United States exports less than 1
percent of its electricity generation, so the effect of tariffs here would
be tiny.
Given the complexity of the border tax adjustment approach, the
alternative of a uniform percentage tariff on imports might be prefera-
ble. The rationale is that nonparticipants are damaging other countries
because of their total emissions of GHGs, not only from those embodied
in traded goods. While the trade is the instrument, it is not the target of
the sanctions. The size of the tariff should relate to the damages in a
fashion that gives countries incentives to be part of the solution, not
just the problem.
