The Maga case for carbon pricing

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The Trump tariff drive has run into legal trouble. Might the US president turn to carbon levies as a way to pursue his protectionist Maga agenda for boosting US industrial output? It seems unlikely. But stranger things have happened . . . 

CARBON PRICING

The climate policy Trump might actually consider

Could Donald Trump’s love of tariffs outweigh his dislike of climate policy? Two Republican senators seem to think there’s a chance.

Bill Cassidy of Louisiana and Lindsey Graham of South Carolina in April introduced to the Senate a new version of their Foreign Pollution Fee Act, which they claim would “level the playing field for American manufacturers” by imposing carbon emission-linked levies on a range of imports.

The bill is inspired by the fact that US manufacturers tend to have smaller carbon footprints than their Chinese rivals. That’s largely because the biggest means of electricity generation in the US is its abundant shale gas, while the Chinese grid has a greater reliance on coal (though new capacity in both countries is now mostly renewable).

So imposing carbon-related levies could be a clever way of socking Chinese manufacturers and reducing the bilateral trade deficit, the logic goes.

In a paper published this week, academics at Harvard’s Belfer Center have assessed the potential impact of the bill, which would apply levies to goods including steel, fertilisers, cement, aluminium, and solar and battery inputs (but not fossil fuels). The greater the carbon-intensity of manufacturing in the country of origin, the higher the charge applied to the product.

The researchers found that the system would generate up to $40bn a year in federal revenues, if applied to current trade volumes.

But while the senators have focused heavily on China in their justification of the bill, it wouldn’t be the country worst affected. That would be Canada, which is a far larger exporter to the US of goods such as steel and fertilisers, and would face $11.1bn of levies on its US exports under the FPFA, according to the Harvard research. China comes in fourth with $3.4bn, behind Mexico and Brazil.

The Harvard team argues that the FPFA would have more “international credibility” if it adjusted levies to take into account carbon pricing systems in exporting countries, as the EU is doing with its incoming carbon border adjustment mechanism. That would mean far lower levies for Canada — which currently imposes a price of nearly $70 per tonne of carbon dioxide on large industrial emitters — while putting high ones on China, where the industrial carbon price is about $10.

The paper also calls for the US to impose a national carbon pricing system at home — again, to bolster the perceived legitimacy of its carbon tariffs internationally, and also to boost long-term competitiveness by accelerating the clean energy transition.

The latter policy seems unthinkable under this administration. But the idea of Trump throwing his weight behind the Cassidy-Graham bill is less far-fetched than you might think. The president has attacked China for polluting “with impunity” (and given his imperialist second-term stance towards Canada, the impact on his northern neighbour might look like a bonus). As judges throw his previously announced tariffs into doubt, this could be a means of doubling down on a policy tool to which he’s been attached for decades.

Even if the bill were to pass, however, it’s not obvious that it would do much good for the climate, at least in the near term. A study last month by the think-tank Resources for the Future found that the law would “have a minimal effect on global emissions”.

The bill would boost US output of the products covered, as well as imports from trading partners with less carbon-intensive industrial sectors such as the EU, RFF found. But it forecast a relatively slight $3.3bn annual contribution to the federal coffers, after the fall in imports from heavily emitting producers.

And while the “embodied carbon” of US imports would decrease, this would be offset by a reshuffling of global trade as affected exporters sell their products elsewhere, and by an increase in the US’s own industrial emissions, RFF predicted.

Still, for those who believe that price signals can be an effective means of driving emissions reduction, this Republican-backed bill (together with recent legislative efforts from Democrats) may encourage hopes of more serious US carbon pricing action under a future administration.

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