are carbon tariffs the key to solving climate change?

we’re taking a break from the origins of the Arab-Israeli conflict this week since carbon tariffs are back in the news. there’s news that the white house and Joe may not end up backing this popular progressive policy after all. we’ll get into why and what impact that might have on climate change in a minute, but first -

What the heck are carbon tariffs?

you’re forgiven if you have no earthly idea what carbon tariffs are since they are a pretty new policy idea. first let’s cover what a tariff is - it’s just a special tax on imported goods or services. tariffs have been used for centuries for a variety of reasons ranging from protectionism (to encourage domestic production of something, like grain or cars) to petty egoism (see He-Who-Must-Not-Be-Named’s tariffs on various Chinese goods). like pretty much all taxes, the cost of tariffs end up getting passed onto us, regular consumers. if a bakery runs out of American grain to buy and has to buy some Chinese grain for 25% more than American grain, the bakery will just charge 25% more for a loaf of bread. it’s okay, we’re going keto anyways.

now, how does carbon get involved with tariffs? well, the idea is creating a tariff which targets carbon-emitting (or very polluting) goods, like steel, cement, or fertilizer. creating these goods is incredibly bad for the earth and contributes to climate change, so we need cleaner ways to make them. the issue is that these cleaner ways are often much more expensive - for example, you can use coal to create steel at a very low cost, or hydrogen, which is 60% more expensive. with higher costs like that, steel producers are choosing just to move production overseas to third world countries which don’t have carbon or pollution controls. they then import the polluting steel to the US for cheaper prices than the low-carbon steel made in the US.

a carbon tariff would level the playing field. if low-carbon steel made with hydrogen is 60% more expensive to make in the US, there would be a 60% tariff added to high-carbon steel made with coal imported from china.

who wants - & doesn’t want - carbon tariffs?

well, obviously hippies and environmentalists want carbon tariffs. they’re pushing strongly for the idea in both the EU and the US, with the proposal included in recent long-term green infrastructure plans. opponents include pretty much everyone who hates the earth jk just you know, giant corporations, conservatives, and countries that care more about economic growth than climate change.

however, the issue which Joe and American progressives are coming up against is that tariffs end up raising prices for consumers. in this case, that price increase would be for a good reason (so low-carbon goods would be at least the same price as high-carbon ones), but that’s still a tax on regular people. that would break a major campaign promise of Joe’s, who said he’d only raise taxes on the wealthy. while the carbon tariff is still included in the current draft of the $3.5 trillion infrastructure bill being considered now by the senate, it’s future is questionable at best.

why are they still a good idea?

industry creates a fifth of all greenhouse gas emissions globally, with steel manufacturing alone emitting 7% of all global carbon dioxide. while there are greener ways to produce these goods, companies have little incentive to switch over to those methods while they’re still expensive. businesses are choosing to either move to manufacturing overseas where pollution is less of a concern or spin-off high-carbon portions of their companies. neither of these tactics actually reduces carbon emissions, but a carbon tariff could help put an end to these shenanigans.

the only question for politicians is whether they can get away with marketing the tariff as a tax on corporations, not on consumers. You-Know-Who famously tried to do so during his trade war with...pretty much the rest of the world, and it wasn’t particularly successful. progressives in the US may be better off calling for subsidies of low-carbon manufacturing technology, similar to tax credits for electric vehicles, solar panels, and efficient appliances. instead of raising the prices of low-carbon goods, they lower the prices of high-carbon goods, creating the same effective result. everyone’s on board with more free money from the government, right?

we’ll see what ends up happening, and of course, will update you here on TWR once it does. if you haven’t already, subscribe to our weekly newsletter to stay tuned.