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Adjusting A Carbon Price At The Border

Adjusting A Carbon Price At The Border

Full Title: Adjusting A Carbon Price At The Border
Author(s): Catrina Rorke and Josiah Neely
Publisher(s): R Street Institute
Publication Date: September 1, 2017
Full Text: Download Resource
Description (excerpt):

Economists from across the political spectrum support a carbon tax as the most efficient means to reduce greenhouse gas emissions. Not all carbon taxes are created equal, however. For a carbon tax to function properly, there are certain design questions that must be addressed. Previous R Street research has made the case for a revenue-neutral carbon tax; one that would pre-empt regulation of greenhouse gases by the Environmental Protection Agency (EPA); and that would use revenue from the emissions fee to offset cuts to more economically harmful taxes, particularly those on capital. This paper focuses on another issue related to carbon-tax design: how to deal with imports from and exports to other nations that do not have an equivalent carbon price.

Specifically, this paper examines how a carbon tax could be border adjusted to increase its effectiveness, even as it limits the economic costs. Under a border-adjusted carbon tax, imports to the United States from countries without a carbon price would be taxed as if they had been produced locally. By contrast, American exports to countries lacking a carbon price would be refunded the implicit amount of tax used to produce those products. Properly designed, a border-adjusted carbon tax removes the competitive international disadvantage that otherwise could plague a nation that decides to institute its own carbon price and reduces the risk of carbon “leakage” to nations without effective carbon policies.

All statements and/or propositions in discussion prompts are meant exclusively to stimulate discussion and do not represent the views of, its Partners, Topic Directors or Experts, nor of any individual or organization. Comments by and opinions of Expert participants are their own.

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