Ever since the Rio climate conference in 1992 that kicked off the UN Framework
on Climate Change (thanks to President George H. W. Bush’s leadership), most
global climate summits have ended in disappointment. The 1998 Kyoto Protocol
negotiated by the Clinton Administration never went to the U.S. Senate for
ratification. The much-lauded Paris Climate Agreement championed by the Obama
Administration fell short of treaty status and was quickly abandoned by the
Trump Administration. Congressional Democrats' current logjam over President
Biden's climate agenda is yet another case in point for why durable,
bipartisan climate policy is desperately needed.
The carbon border adjustment
(CBA) offers the U.S. a real opportunity to embrace a policy mechanism that
will not only reduce carbon emissions, but also position some key U.S.
industries (like steel) to benefit. CBAs have been promoted by pro-market
environmentalists for years, and finally seem to be catching on. In July, the
European Union introduced a border adjustable carbon tax, and a CBA has been
in and out of the constantly evolving package of infrastructure and climate
proposals working their way through the U.S. Congress.
Policymakers who
genuinely care about climate change should strongly consider supporting a
CBA—or advocating for one at COP-26.
The mechanism works like this: a country
imposes tariffs on carbon-intensive imports but exempts from the tariff goods
that come from countries that have imposed a tax or other fee on carbon
dioxide emissions. A CBA would prevent countries with carbon pricing
mechanisms from being unfairly penalized for their climate efforts, while also
establishing a clear financial incentive for businesses to minimize carbon
emissions. Eventually, these carbon tariffs put pressure on trading partners
to follow suit and introduce their own carbon pricing regimes. The competitive
advantage for countries that implement carbon pricing is two-fold: not only do
their exports remain competitive, but they also generate extra tax revenue at
home rather than sending it abroad.
The disadvantages to countries that fail
to price carbon are similarly magnified, and exponentially so as more
countries join the carbon pricing club. We believe a CBA would directly
benefit U.S. industry by rewarding the cleanliness of our products compared to
imports from emissions-heavy countries like China and India. For instance, a
May 2021 study by the Climate Leadership Council found that the U.S. steel
industry has a major carbon advantage over foreign competitors, which on
average emit 50-100% more CO2 per ton than their U.S. counterparts. A CBA
could therefore make US steel more economically competitive, potentially
increasing sales by 7-9%.
The U.S. could lead on
global CBA adoption in a few ways. One path forward (albeit a political long
ball) is to quickly pass a border adjustable carbon tax through Congress. Such
a move would not only keep our exports competitive, but also secure our
position as a global clean energy leader. The other option is to put the CBA
on the table at COP-26. This would be a baby step, but progress nonetheless.
Winston Churchill once quipped, “You can always count on Americans to do the
right thing — after they’ve tried everything else.” American politicians and
business leaders have been debating climate policy for decades without
concrete results. We now face an opportunity to lead on the world stage. A
cleaner, healthier century beckons; bold action now on carbon pricing will
ensure it remains an American century.
Former U.S. Rep. Bob Inglis (R-SC4
1993-1999; 2005-2011) leads republicEn.org, a growing group of conservatives
focused on free enterprise solutions to climate change. John Sweeney is a
national spokesperson for RepublicEn.org who works in the financial services
industry.
For more essays in this series see the following:
Get real about Climate Change. Part 3: Why are efforts to combat climate change such a failure?
