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By Karl Reitz
As the world grapples with how to respond to the climate crisis, many countries (including the European Union and Canada) are instituting a price on carbon, which often comes in the form of a carbon tax or a system of cap and trade. Currently, the United States has no such national policy, although there are a number of bills before Congress that would establish one.
As more countries adopt a price on carbon, one of the mechanisms that will keep their industries competitive is to institute tariffs on imports from countries that have no price on carbon. This mechanism is called a border adjustment. The European Union and Canada are currently working on plans to institute such an adjustment. These tariffs could apply to carbon-intensive products such as steel, concrete and possibly agricultural products. Since the United States has no price on carbon, its products might be subjected to such tariffs. The tariffs would benefit the citizens of those countries; whereas, if the U.S. had a price on carbon, we would benefit.
If the United States were to introduce a price on carbon, its carbon-intensive goods would become more expensive to produce. As a result, if a company exported its products to a country without a price on carbon, it is likely that those items would not be competitive with locally produced goods. Therefore, in order to keep U.S. companies competitive, border adjustments would include a mechanism to compensate these companies and allow them to maintain their markets.
Similarly, a U.S. price on carbon along with a border adjustment would create an incentive for other countries to institute their own price on carbon. This solves the problem of getting other countries to meet their responsibilities with respect to the climate crisis.
Given the serious consequences of the climate crisis, countries of the world will need to reduce the release of carbon into the atmosphere. The best market-based method of accomplishing this is via a price on carbon. This will also necessitate the introduction of border adjustments. In order for the United States to keep its industries competitive, as well as to do its part in addressing the climate crisis, passage of a price on carbon accompanied with a border adjustment is our best alternative.
Karl Reitz, PH.D., is an environmental science educator, a member of the South Orange County Chapter of Citizens’ Climate Education/Lobby, and a retired professor of social sciences from Chapman University.