Guest post by Wyatt Boyd, an intern at the Carbon Tax Center and graduate student in Columbia University’s Climate and Society Program
It usually doesn’t take long for conversations about carbon taxes to turn to “emissions migration.” Won’t a U.S. carbon price, it is asked, simply push coal-fired power plants, factories and jobs out of the country? It turns out, however, that the issue of emissions migration perfectly illustrates the merits of revenue-neutral carbon taxes.
During an internship with the Carbon Tax Center this summer, as part of my graduate work at Columbia University, I prepared a working paper that weighs the costs and benefits of a carbon tax and emissions migration. My main finding is that the risks of not pricing carbon far outweigh the possible pitfalls of carbon taxes. Click here to see a copy of my paper, Global Emissions Migration and a Revenue Neutral Carbon Tax.
My paper demonstrates that the gloom and doom about America’s industries packing their bags and heading for low-cost countries in Asia or elsewhere at the first serious sign of a U.S. carbon price is grossly exaggerated. In fact, if carbon taxing leads the U.S. to reward labor and income more, and greenhouse gas emissions less, the opposite is more likely to occur. Placing a clear and certain price signal on carbon, which by the way is elusive with a cap and trade design for all the reasons described in an issue paper prepared by the Carbon Tax Center, has huge implications for the 10 trillion dollars of new capital the IEA estimates will be available for energy investments by 2030. With a revenue neutral tax, capital will neither be left sitting on the sidelines waiting for the rules to be clarified, or, still worse, locked up in soon to be obsolete or outlawed dirty coal plants. Instead, with clean energy a clear winner on their balance sheets thanks to a tax shift, U.S. firms will capture a huge new competitive advantage in the “next big thing” in the global economy – clean, carbon-free energy. The new investments will create many new middle-income jobs at home and contribute to a sustainable infrastructure driven boom. According to the excellent new book Earth: The Sequel by Fred Krupp, President of the Environment Defense Fund, clean tech typically provides twice the jobs per investment as traditional nuclear or coal plants. The costs of not enacting a carbon tax are millions of jobs lost and trillions of dollars of new investments stuck in limbo in the coming decades. The people who harp on emissions migration rarely mention this sobering opportunity cost to not pricing CO2.
Our country’s dependence on foreign oil creates huge economic, environmental and national security issues. Reliance on dirty coal is an environmental disaster, with new coal plants locking us into either intolerable emissions or the need to throw away money by shutting the plants before the end of their useful lives. By providing a powerful new incentive for clean energy development and deployment, the United States will not just see new investment and sustainable economic growth for decades to come, but get way ahead of the innovation curve in key areas like concentrated solar – and export these technologies to the world! Technologies like solar thermal, direct current transmission lines and clean coal + carbon capture are rapidly maturing today. The problem is they have to compete with coal, which is literally and figuratively as cheap as dirt, when its true costs are not factored into its price. Alas, with our current stagnant and backwards energy plan, Germany and Japan are dominating the field of clean tech (about 90% market share) while the U.S. sits paralyzed for lack of responsible public policy. The real issue is not emissions migration, a drop in the bucket compared to the torrent of new investments and development that would flow from a revenue neutral price on carbon. The real issue is when will the U.S. stop searching high and low for excuses and scapegoats like emissions migration, and develop a real energy plan?
Photo: Flickr / cjohnson7
James Handley says
A US carbon tax that included a tax on embedded carbon in imported goods would minimize emissions migration. Because GATT allows taxation of imports at equal rates to domestic goods the US could tax imports from non-carbon taxing trading partners. They’d have an incentive to enact their own carbon taxes to capture that revenue.
Tax Jobs says
I think the only way out for the US economy is to switch to lesser polluting sources of energy like ethanol. Although it will take a massive investment and a few hiccups along the way, the end result will surely be pleasant.
I discuss the issue of tarriffs/cross border taxes as one of three approaches to leakage in the paper. The main issue with it, besides perhaps being trade restrictionist, is that China and India (and others) have already made it very clear that they would oppose it before the WTO. In all likelihood it would then be almost a decade before it was heard before the dispute settlement panel, and then another few years before it went before the binding Appellate Board. Senator Webb has explored this a lot. The key arguments involved are the most-favored nation principle and the general agreement on tarriff levels overall, both which provide potentially strong cases against cross border wealth adjustments. Because of the time and uncertainty involved in this route, I reccommended the U.S. lead the way by showing how a revenue neutral price on carbon benefits the economy. The history of environmental agreements is that either the U.S. or EU leads unilaterally, and lesser developed economies follow within a few years.
James Handley says
Thanks Wyatt for your work and your reply.
Ease of internationalizing a carbon tax is one of its great advantages over cap-and-trade. Thanks for the historical perspective on the need for US and EU leadership.
It’s clear that India and China oppose cap-and-trade (for good reasons). Couldn’t the US impose a non-discriminatory carbon tax on imported goods to harmonize with tax levels on domestic goods?
My understanding is that if US trading partners enact their own carbon taxes, then the harmonization rationale for taxing imports would disappear — in effect, China or India would capture the carbon tax revenue by enacting their own carbon taxes on all goods. If their tax were only on exports it would violate the non-discimination rules but if it covered all goods it would be permitted. Correct?
And thank you for your insights into this very important issue. I think a carbon tax could be realized globally faster and more efficiently than a cap and trade, no question. And I certainly think the harmonization argument as a strong incentive for China/India to enact a tax is possible but by no means guarenteed. I think however in the rhetoric of developing economies that they want wealthier economies to pay the price unilaterally, because it’s relatively cheaper for them and because they are historically responsible for the majority of emissions. President Sarkozy’s mention of an EU import tax was met with hostile rhetoric and a promise to defeat it in court, not to trade it for their own domestic pricing system. Developing economy trade reps have been quoted as saying they won’t be "suckered into" paying for the past two hundred years of developed country emissions. It just seems to me that energy access and prices are such a sensitive area for economies growing at 8%+ a year that they will oppose any foreign pressure in that area. If however the US/EU can demonstrate that with a revenue neutral price on carbon you can capture new economic growth via clean tech and green jobs, then I think they won’t be able to get on board quick enough.
Thought you all might be interested in reading this analysis of the current state of the BC carbon tax. http://www.worldchanging.com/archives/008493.html