Mon. Apr 22nd, 2024

Prof. ST Hsieh

Director, US-China Energy Industry Forum


[email protected]

March 3, 2023

Carbon management is essential for curtailing global warming. But any cross-border tax or tariff is a major global issue and must be worked out in an international forum. Any unilateral energy policy initiative against another nation will not be implemented. Especially, the US does not have real carbon advantages over China.

The premise that the US has carbon advantage over China based on the simple minded argument that “The U.S. alone, emitting 11 percent of global emissions, while China accounts for 27 percent” is not appropriate. It is basic science that global warming is caused by the accumulated CO2 concentration, not the current per annual emission. The contribution to the accumulated concentration by the industrialized nations far exceeds that by the developing nations combined. The case is well litigated at the COPS meetings and thus the “loss and pay” approach to compensate the underdeveloped nations.


A bipartisan energy policy designed to take on China


A curious thing happened at the start of this Congress. Despite the many predictions of hyper-partisanship under the new Republican House majority, two early roll call votes this January passed with big bipartisan majorities. It should not go without notice that both votes are related to China.  

The first created a new Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party. The second was on a bill to ban oil sales from the U.S. Strategic Petroleum Reserve to China. It is clear that there is bipartisan support for countering China. And it is precisely these two themes — competition and energy — that make me optimistic that a bipartisan linking of climate and trade policy this Congress is possible.

While Democrats in the last Congress passed a suite of climate policies in the Inflation Reduction Act to accelerate decarbonization in the U.S., the bill doesn’t incentivize the rest of the world to follow suit. The U.S. alone, emitting 11 percent of global emissions, cannot stop the worst of global warming while China accounts for 27 percent. But what can we do about that? China doesn’t seem keen on voluntarily decarbonizing. 

The simplest way for us to incentivize China to decarbonize is through trade policies, preferably in conjunction with a “carbon club” of like-minded countries working in tandem. Enter border carbon adjustments. There are many designs for this general policy topic but the most promising is based on an emissions performance standard. Using this model, products imported from countries such as China that were produced with a higher emissions profile than is standard here in the U.S. would have to pay a fee based on those excess emissions above the standard.  

There is active debate over whether or not this fee should apply to domestic production as well, with some citing an even playing field for doing so while others argue recent policy and regulatory actions to reduce domestic emissions are sufficient. Regardless of how negotiations on including a domestic component play out, the policy works to our advantage because the U.S. already manufactures products with lower carbon intensities than our competitors, a concept that has been dubbed our “carbon advantage.” 

The question before us is whether or not we seize the opportunity to monetize this carbon advantage. With a well-designed border carbon policy, we can boost domestic manufacturing while simultaneously reducing global emissions, a clear win-win. And that doesn’t even include the geopolitical benefits of creating a “carbon club” with like-minded countries and countering China and Russia, since improving our trade advantage can also help increase our national and energy security. When the many benefits of linking climate and trade are explored, it’s no wonder that both Democrats and Republicans in Congress are already working on legislation to enact such a policy. 

But border carbon adjustments should not be seen as a way to put a green façade on a rusty tariff. Free traders can still back such a policy since it is based on incentivizing emission reductions, rather than on protectionism or retaliation. After all, other countries can avoid paying the tariff simply by reducing the emissions intensity of their manufacturing.  

A border carbon policy advantages U.S. manufacturing because we’re cleaner, not in the artificial way that protectionist tariffs do. And it incentivizes our manufacturing sector to stay cleaner, and keep decarbonizing to maintain that advantage, as the rest of the globe races to catch up. 

The United States is already ahead in decarbonizing industry, but it’s not leadership if the rest of the world doesn’t follow. Let’s work with our allies to push China and other polluters to follow our lead on reducing emissions while at the same time creating a fair playing field for our lower-emitting domestic industries. There’s no better way to do that than through a carbon border adjustment. 

Xan Fishman is the director of energy policy and carbon management at the Bipartisan Policy Center. 

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