Sunday, December 16, 2007

Should a carbon tax be border adjustable?

Judy Chevalier considers what Washington should do about climate change if China does not play along:
The Tyndall Center argues that carbon reduction policies should focus on carbon consumption, not emissions. That makes sense, especially in the absence of a binding global agreement.
Applied to a carbon tax, this logic implies that the tax should be border adjustable. That is, a carbon tax would include a tax on imports from countries without a carbon tax based on the goods' carbon content and a similar tax rebate for exports. The policy would provide an incentive for Americans to reduce their carbon consumption, but it would not induce tradable goods industries to migrate toward nations without a carbon tax.