Taxing Foreign Companies for CO2 Emissions: American Protectionism?

Photo via ECVV

Yesterday, Energy Secretary Stephen Chu told a congressional panel that they should consider taxing imported goods from foreign companies that don't try to limit their greenhouse gas emissions. China's top climate negotiator immediately shot back, saying that the idea was a thinly veiled "excuse to impose trade restrictions." He went on to claim that such a tax would be American protectionism masquerading as "climate protection." Harsh. But does China have a point that the measure would be unfair, or do we have a right to tax polluting companies from other countries?American "Climate" Protectionism?
Well, let's lay out the case for each side. Chu's proposal is based on the idea that American companies striving to reduce emissions place themselves at a disadvantage: increasing energy efficiency, switching to cleaner fuel, and so forth are expensive initiatives. Companies that don't bother have an advantage, at least in the short term—they don't have to spend any (now-scarce) funds on trying to curb emissions.

And Chu's proposal is forward-looking—he wants to make sure that once legislation is passed to regulate greenhouse gases produced by US companies, those companies won't be struggling to compete with foreign companies that have no such restrictions imposed on them.

It's clear why China takes issue with this, however—exporting goods to the US is a massive part of China's economy. Companies like Wal-Mart import cheap products and materials from China—their business models depend on it. The mass manufacture of cheap goods has been instrumental to China's boom--so if companies have to start charging more for their goods because of some greenhouse gas tariff, they risk losing market share.

But perhaps they'll lose their market share to greener companies in the US that are attempting to regulate emissions. That's the ideal, anyways.

In Favor of Greenhouse Gas Tariff
Which is part of why the greenhouse gas tariff is a good idea, as long as it's imposed responsibly—strangling companies in developing countries that are far from being able to regulate their emissions does seem unfair. But China is another story—it recently passed the US as the biggest carbon emitter in the world: together, we generate 41 percent of the world's emissions. We need to be cooperating. And this tax is also designed to encourage foreign companies to cut their carbon—which Chinese companies need to be doing as much as American ones if significant inroads are to be made in fighting climate change. It's going to be financially painful for companies in both countries—but we need to start making moves like this sooner rather than later.

So, the impact of a climate protection tariff in a nutshell:

Greener US companies become more competitive. More jobs are potentially created stateside in the process. Foreign countries get an incentive to curb carbon. Countries less equipped to do so could be at a disadvantage.

So is it American Protectionism?
Not really. It would, I suppose, protect American companies. But only those making efforts to curb carbon emissions. And, if foreign countries make similar efforts, they'll suffer no tariff, thus leveling the playing field. The tax, in essence, protects all companies reducing their emissions.

More on Greenhouse Gas Taxes
Obama Should Implement Carbon Tax , Eminent Climatologist Says
Carbon Tax , Not More Financial Engineering, Best Way to Reduce
What Would a Carbon Tax Look Like?

Tags: Carbon Dioxide | Carbon Emissions | Consumerism | Economics