Carbon border taxes are unjuston July 27, 2020 at 9:00 am

The European Union’s economic recovery plan is notable for its focus on climate action, sustainable investments, and a just transition fund. As part of this deal, the EU is also proposing a carbon border adjustment, also known as a carbon border tax, on imports by 2023. In the simplest terms, a carbon border adjustment is a tax on imported goods such as steel or cement, where the amount of tax depends on the carbon emissions associated with producing those goods.

The argument in favor is that carbon border adjustments will nudge developing countries to reduce emissions and level the playing field for local firms that develop low-carbon products. This is not just a European idea–several US organizations and former Democratic presidential candidates, including Senator Elizabeth Warren, have proposed the idea of carbon border adjustments as a means for the US to lead on international climate action.

Although reasonable at face value, unilateral carbon border adjustments merely represent the latest form of economic imperialism and are antithetical to the principles of equity enshrined in the Paris Agreement (pdf). Article 2 clearly states that the agreement “will be implemented to reflect equity and the principle of common but differentiated responsibilities.” Without buy-in from countries like India and China, carbon border adjustments risk becoming a climate-based sanctions regime.

A short history lesson can be helpful. That China, India, and other developing countries rely on fossil fuels to power their economies is not an accident. These growth models are a consequence of post-World War global dominance by the West in economic, political, and financial spheres.

Until very recently, international organizations like the World Bank Group (pdf) provided financing to expand fossil-fuel infrastructure, including coal-fired power plants, in developing countries. In those countries even today, extractive industries such as mining and oil and gas are more often than not led by multinational corporations based in the West, with the active support of Western governments. These investments lock developing countries on a trajectory of emissions-intensive development for decades to come.

To actively promote such fossil-fuel development and then punish developing countries for emissions through carbon border adjustments is, at best, hypocritical. It’s also unjust. After all, these same forces of globalization helped the developed world shift manufacturing and outsource its associated pollution burdens to China and other developing countries.

The decision to impose such taxes on developing countries reflects the colonial practice of wealth transfer from the developing to the developed world. Without due consideration to historical harms, carbon border adjustments perpetuate a cycle in which the developing world suffers for the actions of the developed one.

In the US, which is in the process of withdrawing from the Paris Agreement, protectionist trade policies such as carbon border adjustments often find bipartisan favor. But the same policymakers who would recognize the inequity of imposing carbon taxes on low-income Americans fail to see the injustice of penalizing developing countries for their emissions.

Consider this: In 2016, the US won a case at the World Trade Organization against India’s use of domestic-content requirements–a rule that required solar project developers to buy equipment from domestic manufacturers. The US argued that India’s rules were protectionist and discriminatory. It’s hard to argue against some protectionist policies while promoting others.

What does an equitable climate policy look like? If the goal truly is to reduce global carbon emissions, climate policy should focus on offering positive reinforcement and building capacity in developing countries instead of imposing punitive measures like carbon border adjustments.

The bedrock principle for effective global action on climate change must be climate-focused wealth transfers. The Green Climate Fund–established as part of the Paris negotiations–is a good start, but it is not sufficient, nor has it been fully endowed. Another important step is to make structural changes to economic and trade institutions. Reforms to WTO rules should allow developing countries to grow a domestic green manufacturing sector without triggering a WTO dispute. Developed countries and global financial institutions should extend access to low-interest financing, as well as to technology transfer and bilateral trade and exchange programs that help build capacity for climate mitigation and adaptation in developing economies.

No single country can solve climate change on its own. Cooperation is essential. But in order for these efforts to succeed, leaders and policymakers must decolonize norms of engagement. They must prioritize the needs of the least-developed countries, which will disproportionately bear the impacts of climate change.

The Paris Agreement succeeded because it gave real agency to developing countries. It made them partners in the fight against climate change, as opposed to mere observers. That’s how the world will solve the climate crisis–with a deep understanding of what it means to equitably share the burden. Without such an approach to climate policy, the world risks retreating into corners of isolationism and nationalist populism that will ultimately put us all at greater risk.

Arvind Ravikumar directs the sustainable energy development lab at Harrisburg University of Science and Technology in Pennsylvania. His group studies US energy and climate policy and equitable transitions in the developing world.

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