Use Tariffs to Fight a Real Emergency: Climate Change

A Changing Climate Means A Changing Society. The Island Press Urban Resilience Project, Supported By The Kresge Foundation And The JPB Foundation, Is Committed To A Greener, Fairer Future.​ This Op-Ed Was Originally Published February 7, 2019 In The Hill.  

The U.S.-China trade war grinds on, and — unless a truce is reached by March 2 — the Trump administration will increase its tariffs on Chinese imports from 10 percent to 25 percent.

But Trump’s tariffs remain unpopular in many quarters. They have drawn firefrom a wide range of economic interests, from Midwestern farmers to manufacturers in the Northeast. They may be taking a toll on American families: a recent study found that the tariffs could cost each American household $2,400 in 2019. And most economists agree that the problem the tariffs are intended to solve — the trade deficit with China — is not the emergency Trump thinks it is.

Meanwhile, we are facing a real emergency: climate change. Last year’s UN climate report found that we have a dozen years to cut carbon emissions nearly in half to avoid catastrophic climate change. The U.S. National Climate Assessment showed that long-feared impacts of a warming world — devastating wildfires, destructive storms, rising seas — are now upon us. Just last week, the Worldwide Threat Assessment, prepared by the U.S. Director of National Intelligence, observed that climate hazards are intensifying, “threatening infrastructure, health, and water and food security.”

So, if we are going to use tariffs, why not use them to address the real and present danger of climate change?

Here’s how it could work. The United States could levy tariffs on imported units of fossil fuel, and taxes (technically fees) on domestic production. The tariff or fee would be determined by the amount of climate-changing greenhouse gases (GHGs) emitted by burning that unit of fossil fuel. The tariff could be directed to help defray the health, environmental and other costs of climate change, which are now borne by consumers and taxpayers.

The tariff would create a level playing field because producers from all countries would be subject to the same price for GHG emissions. And, importantly, the tariff would create an economic incentive for companies and consumers to rely on alternative, cleaner energy.

The Obama administration estimated that a ton of GHGs emitted into the atmosphere costs society about $50. (Although economists can debate the precise numbers, this estimate can be used to project potential future costs.) Government experts in 2017 calculated that a $50 per ton tax on GHGs (increasing to $70 per ton in 2028) would add about $21 to the price of a barrel of crude oil and raise $2.2 trillion in net revenue over 10 years from 2019 to 2028.

Those substantial revenues could be used to mobilize our economy to fight climate change on multiple fronts. For example, the federal government could offer consumer credits and zero interest loans to purchase electric vehicles and to rebuild homes hit by weather related disasters using renewable energy. Workers displaced by switching from coal to cleaner forms of energy could be retrained. Local and state governments could receive cash incentives to build infrastructure that can withstand flooding from extreme weather-related disasters. And, crucially, low- and moderate-income families could receive dividends to offset any price increases that result from the tariff.

There are other ways to reduce GHGs, but none are as effective as a tariff or fee. The Paris Agreement calls for each country to set voluntary targets for reductions in GHGs. But voluntary commitments fail because they have no mechanism for enforcement.

Another alternative, a “cap and trade” system, would have government set a limit, or cap, on the overall level of GHGs from industry sectors and reduce that cap year after year to reach a set pollution target. Trading occurs because a company can sell excess credits to others if it does not exceed the cap or buy additional credits if it goes over the cap. A drawback of this system is that each country can set a different cap or level for GHGs emitted. For example, China set an experimental cap, limited to the oil sector, which is criticized for not being sufficiently aggressive. Also, governments can be influenced by industry to provide loopholes for industry sectors that have a strong lobby. Finally, caps are difficult to enforce based on the need to monitor and to measure carbon emissions from diverse industrial sectors.

The Trump administration is willing to use tariffs to address the dubious threat of trade deficits, despite howls of protest from numerous constituencies. At the same time, it ignores the very real threat of climate change, choosing to roll back key environmental regulations even as GHGs from fossil fuels continue to increase. If we are going to use tariffs to reshape our economy, let’s at least use them to fight the imminent threat of climate change, and to ensure a cooler, greener planet for future generations.

Download Resilience Matters!