Border carbon tax could cut emissions

Major trading countries are urged to make a big contribution to the battle against climate change by introducing a carbon tax on imports.

The US, China and the European Union (EU) should bring in border taxes on carbon emissions contained in imported products not already taxed in their countries of origin, according to a former New Zealand cabinet minister.

It would mean that if China, for example, includes rice in its emissions trading scheme, any rice it then imports − and which had not been subject to an emissions tax in its country of origin − would incur a border carbon tax.

Peter Neilson, an economist who served as minister of revenue and customs in the 1980s, puts forward the idea in a study of carbon pricing and international trade.

By introducing the carbon tax, he says, all countries would then be encouraged to start pricing in climate-changing carbon emissions in their products in order to protect their traders.

Imposing a market price on carbon emissions has been repeatedly put forward as a key way of tackling climate change.

Trading schemes

But carbon trading schemes − such as the EU’s Emissions Trading System, the world’s biggest – have so far failed to make any serious contribution to reducing emissions of greenhouse gases.

“After nearly 25 years of negotiations on climate change, we still do not have a price on most of the world’s greenhouse gas emissions,” Neilson says.

Neilson, who in 2008 was instrumental in setting up the New Zealand emissions trading scheme − the first national carbon trading regime outside Europe – says drastic measures are now needed as time to prevent catastrophic climate change is rapidly running out.

“For a global agreement to cap and then reduce emissions to work, almost every country needs to agree to take responsibility for a share of the globally reducing cap and live with the consequences of eventually lowering its own domestic emissions level, or paying someone else to reduce theirs,” he says.

Under the current system, any country that moves first on taxing carbon in its products also risks putting its exporters at a price disadvantage.

After nearly 25 years of negotiations on climate change, we still do not have a price on most of the world’s greenhouse gas emissions.

Peter Neilson, economist and former minister of revenue and customs, New Zealand

Neilson points out big countries don’t want to be the first to act, in case they end up paying the full costs of tackling climate change, while small countries know they can’t fix the problem on their own, and so are waiting for large countries to move first. The result is an impasse.

Price on carbon

“The effect of most countries holding back on making a serious commitment means that no global agreement gets off the ground,” Neilson says. “This is called the ‘free-rider’ problem.

“The producers may threaten to relocate their production to a country that has not imposed a price on carbon; this is called the carbon leakage problem.”

With attempts to put an international price on carbon proving politically impossible, Neilson believes it is time for the world’s superpowers to push the process forward by imposing border taxes on carbon.

This should be done as soon as possible, he says. “We need a new starter agreement with the potential to grow into a global agreement.

“Fortunately, we have an example from the world of international trade, known as border price adjustment. When combined with the experiences of the Kyoto Protocol on emissions trading, this holds out the prospect of a practical solution to the problems that have bedevilled climate change negotiations to date.”

This story was published with permission from Climate News Network.

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