Posts Tagged China

Levying Carbon Tariffs, Yes or No?

Posted by on Sunday, 28 March, 2010

Tariffs are a type of import tax, often paid at the port when products arrive from their shipment across the ocean. Tariffs raise the costs of importers, helping domestic manufacturers sell more products and also raising the prices of products at retail stores. Retaliation is not uncommon with tariffs, as a country often decides to raise tariffs on a trading partner if its exports are subject to this tax.

Carbon tariffs are not implemented in the same way as other tariffs. Traditional tariffs are usually based on the country’s relationship with its trading partner, as well as the importance of domestic manufacturing firms. For example, when the United States granted China Most Favored Nation status, many tariffs were reduced. Tariffs are higher on industries that are considered to be critical by the country, for example the United States wants to protect auto makers to preserve jobs as well as to keep metal crafting machines functional in case of a war. Tariffs can also be used to punish a country for subsidizing domestic manufacturers who sell products in foreign markets, and Brazil recently introduced several tariffs because of subsidies paid to US cotton manufacturers, according to World Bulletin.

Carbon tariffs have been in the news lately. Energy Secretary Steven Chu suggests carbon tariffs as a method of keeping US industries competitive after carbon taxes are implemented here, according to the Wall Street Journal. Environmental conservation ideas behind carbon tariffs are one method of convincing domestic supporters to back a tariff, which is important because it will raise suppliers and retailers’ prices. Carbon tariffs provide an advantage to developed countries that have already installed emissions reduction equipment, giving them cost advantages over industrializing countries that don’t already have pollution controls installed.

President Obama expressed disapproval about Congress’ provision of carbon tariffs in the energy bill, according to the New York Times. NYT columnist Paul Krugman suggests that the carbon tariffs may be legal, although trading partners such as China threaten retaliation even if they don’t get World Trade Organization approval as Brazil did. French legislators also favor a carbon tariff to protect their manufacturers from Chinese imports, according to EurActiv. The CFR columnist Michael A. Levi opposes carbon tariffs because he thinks that they will not be implemented correctly, as well as causing trade wars.

Measuring carbon emissions accurately requires sending inspectors to the other country to audit carbon emissions, since the country under the tariff has an incentive to underreport its carbon emissions. An influential country such as China might demand to send carbon auditors to the United States and France, putting these countries in a bind. The countries would look hypocritical if they didn’t allow the inspectors in, and letting in foreign inspectors increases the risks of industrial espionage and sabotage and would be unpopular with the public.