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The Case for Carbon Import Taxes

Given the current trajectory of climate change, it is crucial that initial steps by the United States and the European Union to introduce carbon border taxes are successful. That will require policymakers to adhere to the essential principles that should govern such levies.

SINGAPORE – Taxing the carbon content of imports, as the European Union plans to do and US President Joe Biden’s administration is considering, can help to dent the rising trend in global greenhouse-gas emissions. But policymakers must implement such levies in the right way.

By focusing on emissions linked to consumption, rather than just domestic production, such taxes would target the roughly one-fifth of import-related emissions usually excluded from calculations of countries’ nationally determined contributions under the 2015 Paris climate agreement. They would also be timely, given the growing divergence between consumption- and production-based emissions. Since 1990, for example, US production-based emissions have increased by 3%, while the country’s consumption-based emissions rose by 14% over the same period.

Carbon tariffs are not protectionist trade measures; the goal is to reduce the carbon content of imports. But the trajectory of climate change leaves no room for error in emission-reduction policies. The success of initial EU and US steps to introduce carbon border taxes is therefore crucial, because these measures will serve as a model for others. In particular, policymakers must heed some essential principles that should govern such levies.

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