2011-11-20 16:13:58A Carbon Tariff ?


The Australian Parliament has approved legislation imposing a price of $23/tonne on national carbon emissions.  The purposes of the legislation are to

  • achieve a 2020 target of reducing CO2 emissions to at least 5% below those of 2000,
  • assist in development and application of clean energy technology,
  • give certainty to investors in the power generating industry,
  • promote production of energy from renewable sources, and
  • increase the efficiency with which electricity is delivered and used.

It was always envisaged that pricing carbon would result in electricity generators passing on the cost of their emissions to their customers.  That cost would flow throughout the economy to households and businesses.  This would disadvantage both, particularly manufacturing businesses which would be faced with higher energy and labour costs than overseas competitors, such as those in China.

To overcome these problems, government resolved to compensate households and businesses out of the monies paid by emitters as a result of carbon pricing.  However only trade exposed industries would be compensated – that is businesses operating in sectors competing with overseas manufacturers, eg cement, aluminium, steel, etc.  There is no doubt that revenue derived from the scheme approved by Parliament will be sufficient to compensate trade affected businesses.

Fair enough you may think - but it can be argued that Australia should not have to protect its businesses out of its own public revenues from competitors in countries that are not reducing their emissions.  Indeed a good case can be made that taxpayers are being wrongly penalised because countries like China and India refuse to effectively reduce their emissions which, in absolute terms, are far larger than those of Australia.

A fairer and better alternative would be for Australia to impose a tariff on all manufactured imports from countries which do not have annual and longer term, independently monitored greenhouse gas reduction target which provide for 2050 emissions to be 80% below those of 2000.  Such a tariff would vary according to the adequacy of the reduction target set by each country, action taken to achieve it and independent verification of claimed reductions.

A carbon tariff on imports from all countries emitting greenhouse gases could be calculated on the basis of the level of emissions in the exporting country during the the previous year and the value of the imports being levied.

Outrageous! Its against WTO rules, it prevents developing nations achieving higher standards of living for their people, it could severely damage the national economies of trading nations and their sovereignty.  All predictable objections - and all nonsense.  Imposition of a Carbon Tariff of this kind is not contrary to WTO rules and does not prevent developing countries from socio-economic advancement.

National sovereignty is not compromised by agreeing to inspection by an independent international authority.  Many such inspections are already carried out by United Nations agencies.  Having to increasingly rely on renewable energy sources in order to reduce GHG emissions may slow but will not prevent socio-economic advancement.  Where this occurs, international assistance could be provided to help overcome the problem by improving electricity generation, reticulation and the efficiency with which it is used.

Australia can adequately protect its trade exposed industries from carbon pricing revenue but this is less effective and less equitable than introducing a carbon tariff.  A carbon tariff is a better option because it achieves what the former does not, namely:

  • It requires all countries trading with Australia to introduce and work to achieve annual and longer-term GHG reduction targets
  • It requires independent monitoring and verification of action taken to reduce GHG emissions and
  • The conditions imposed by a carbon tariff would be applied to Australian exports by countries importing them.
  • The greater the emissions reduction made, the lower the tariff on exports and the more competitive they become.

In the absence of an international carbon tariff, few countries, certainly not the major emitters, will commit to these measures and action to limit mean global temperature rising more than 2°C above pre-idustrial will simply not be achieved.

Without such inducement, early commitment to annual and longer terms targets and verified action taken to achieve them is not likely to be taken, until it is too late to avert dangerous climate change.  Without these commitments it is impossible to accurately ascertain the source of global emissions or adequacy of proposals and action taken for their reduction.  Without this knowledge we do not know if additional measures are required, where they are required, or what assistance is needed to ensure they are realised 

It is true to say that if you can’t measure it, you can’t manage it.  We can and do accurately measure the level of carbon dioxide in the atmosphere but is there any sense in doing so when we don’t manage it equitably and globally?

It only requires the decision of a single trading nation to introduce and impose a carbon tariff for it to be very rapidly adopted internationally.   Assuming all countries trading with the nation introducing a carbon tariff react by imposing a reciprocal tariff on all imports from that country, an international carbon tariff will come into being.

Given the state of the world economy, many would argue that the last thing we need is introduction of a new tariff which would act as a restraint on international trade.  However, it can be argued that it would only prove to be a restraint on the trade of those countries which refused to set and work to achieve emissions reduction targets and agree to them being verified by independent international inspection.  It would take a particularly perverse trading nation to sacrifice its international trade rather than reduce its GHG emissions.

A carbon tariff would in fact enable countries to improve their international competitiveness, thereby increasing international trade, by reducing their emissions.  To date, all other proposals for effective, meaningful and timely reduction of global GHG emissions have been rejected because one or more major emitter failed to adopt them.  A carbon tariff on imports introduced by one or more major trading nation would reverse this because all nations, no matter what their size, engage in and are dependent on international trade.

2011-11-20 16:14:40


Two concerns.  1. This is not an essay on science, let alone climate science but it is very much related.  2. It may not be appropriate material for publication by SkS, though economic aspects have been published before.

Tom Curtis – I would be particularly grateful for your critique and suggestions and from those of you with sharper brains than me – which means everyone!

2011-11-20 17:59:45Wishful Thinking
Glenn Tamblyn


Agnostic. It pains me to have to say that I think at present this idea is wishful thinking Once the world has got to the point where such an approach would work we would already be so commited to action that it would be just a small measure among many.

As I see it the key fallacy here is summed up in your comment "It only requires the decision of a single trading nation". Sorry but that should actually read "It only requires the decision of a single major trading nation". If Australia for example went down this road unilaterally, the main result would be to significantly isolate Australia from world trade.

China simply says: "You don't want to by consumer goods from us if we don't do X? OK, we'll sell them to someone else. You won't sell us Coal or Iron Ore without this scheme? Well the Brazilians just had a windfall."

Tariffs only work if the impact on your trade partner is more negative than the impact on you. Sadly!

On the other hand, if you can get the EU and US to go down this path, it could work.

2011-11-20 18:29:05


I don't agree with Glenn:

- The rationale for a domestic carbon-based tax is well-known. But this implies a need for a carbon-based tariff, because otherwise you are just encouraging CO2-producing activities to go off-shore, rather than to stop. That's not even good for the country with the reduced visible CO2 footprint, since the harm from CO2 is global, not local.

- China is not going to willingly walk away from any market or any supplier of mineral resources. Indeed, they seem to be buying up raw materials wherever they can.

2011-11-21 05:55:51
Dana Nuccitelli

General comment:

There's nothing wrong with discussing a carbon tariff as a potential climate solution.  My problem is that you appear to be advocating for a carbon tariff.  We shouldn't advocate for specific policy, but you could certainly present it as an option and discuss pros and cons as compared to other policies.

Specific Comments:

I wouldn't call a carbon tariff "fairer", necessarily.  What's fair is rather subjective.  I'd just describe it as another option.

Your "Outrageous" paragraph is a bit confusing, because you don't represent the "outrageous" arguments as coming from people who oppose a carbon tariff.  Starting out the paragraph with "Some might argue that a carbon tariff is against WTO rules..." or something similar would work better.  You also don't explain why they would think it's against WTO rules, or why it's not.  "Some say 'x' but they're wrong" doesn't really add any substance.


My main concern is the general comment - appearing to advocate for a tariff.  You also don't discuss the cons of a tariff, some of which Glenn has mentioned.

2011-11-21 14:17:57
Tom Curtis


Agnostic, I am flattered that you mentioned me by name in requesting a critique, but doubt particular mention in warranted given the company we are keeping.  However, as requested:


1)  Dana's general comment is exactly correct.  If you discuss a particular policy, it should only be to lay out the pros and cons in as even a hand as possible.  In doing so you should bear in mind that:

a) no matter what policy you examine, there will always be several equally good policies for the same purpose and probably some better which are not discussed due to either political expediency or because no one has thought of them yet;

b) every policy represents a value choice, and we we should not endorse any particular value choice beyond a commitment to a low carbon future (if even that). 


2)  Given 1 (b), you evidently make a firm commitment to an equal percentage reduction for each nation rather than an equal per capita emissions limit.  Instead of doing so, you should explore how a carbon tarrif would work with either end policy in mind.  You can then give the advantages and disadvantages of each, bearing in mind that in the end a value decision is involved so that no purely scientific discussion can be conclusive on that point.  You should also bear in mind that in the end the choice between those two policies (are various compromises) will be made by international negotiation.


3)  As a technical point, I prefer a tarif structured as a retail carbon tax.  On that basis, any good sold in Australia would attract a carbon tax based on a best estimate of emissions in its manufacture, regardless of point of origin.  A rebate on the tax would apply for any carbon taxes (or equivalent cost from emissions reducing policies) paid on the good over seas.  That avoids many problems with the WTO, most notably by making it absolutely clear that the impost is equal on all goods regardless of country of origin.  Clearly a hybrid system could also be instituted by having the current carbon tax <u>plus</u> the retail tax, with Australian good from the 500 greatest poluters being exempt from the retail tax because of the carbon tax already paid.  That allows a carbon tax on exports (which would otherwise not apply) but at the expense of increased complexity and hence administration costs.  The retail carbon tax encourages other nations to impose their own tax on the basis that, as the tax will be paid anyway, better the money goes into their own coffers than the Australian governments.


4)  Despite (3), I certainly not be advocating such a tax in Australia in the next 5 years (at least) as it will just restart the very bruising political fight over carbon taxation, so that instead of consolidating our current gain (however flawed), we would place it at risk again.  (This is a purely political consideration.)


5)  Contrary to your claim, I doubt the tarrif as you structure it will pass WTO rules.  That is because the carbon tax in Australia only applies to the 500 worst polluters, and hence not to all emiters.  Based on that, any blanket tarif does impose a trade penalty to importers to Australia, and it would be very hard to prove that a non-blanket tariff does not.


6)  Finally, I firmly believe in set national targets based on equal per capita emissions rights based on 2000 (or 1990) population levels, both on ethical grounds, and because without a move to that sort of basis, we will never get China and India to sign up to binding commitments.  So while I don't think your proposal is outrageous, I do think some of the objections are both predictable and correct, and most certainly not nonsense.

2011-11-21 20:47:02


"all manufactured imports from countries which do not have annual and longer term, independently monitored greenhouse gas reduction target which provide for 2050 emissions to be 80% below those of 2000"

I am all in favour of this in principle.  Just to put this into perspective though China (for example) has more than doubled emissions between 2000 and 2010, so they would need to reduce carbon by more than 90% from current levels by this definition, so you may wish to change the starting date to the present!  We also risk forcing the developing nations into a block of their own especially if their combined indigenous economy is big enough to support themselves.

No doubt developing countries would prefer a carbon target based on an equivalent carbon per capita basis, which would place more pressure on developed countries and hardly discourage population control.

2011-11-21 22:57:40
Tom Curtis


perseus, the reason any such provision has no chance of becoming part of an international agreement is that inevitably places a bar against economic development for third world countries over the next 40 years.  The conundrum is that for China to approach US levels of per capita income (a perfectly reasonable ambition) while maintaining much lower per capita emissions (as this provision requires), they must reduce carbon intensity at a much faster rate than Western Nations.  Reducing carbon intensity has an economic cost.  Therefore such a proposal requires that China bear a much greater economic cost in combating global warming than does the US on the sole basis that the US has historically contributed more to the problem than has China.

No government with any ability to act independently would ever accept such a provision, and China and India certainly have that ability.

While international negotiations may never settle on the provision of equal per capita emissions entitlements as I prefer, you can be certain that they will also never settle on any agreement that does not permit equal carbon intensity between western and developing nations (and most importantly, China and India). 

2011-11-23 12:46:32


Broadly, I agree with the comments made and thank everyone for making them.  They provide me food for thought before doing a re-write or proposing carbon tariff as an option, or abandoning the idea.

President Obama first suggested a carbon tariff on imports, I think in January 2009, as a means of encouraging trading nations to adopt and achieve carbon emissions reduction targets so I think the idea is one which is worth examining.