The way I see it, the major barrier to countries implementing carbon taxes is the fear their economic competitors won’t do the same, therefore hindering their economic growth needlessly. A valid concern.
Why don’t some nations build an ‘opt in’ style Free Trade Agreement that allows any country to join as long as they prove they have implemented and enforced a carbon tax. Those countries then have high financial incentives to only trade within the ‘carbon tax block’ and any country outside is at a serious trade disadvantage.
I’ve (quickly) looked and have not found anything like this proposed (which is frankly crazy).
Would you support your country jumping into this FTA?
What are the unforeseen downsides or objections to a plan like this?
It might be a big tripping hazard to go full “free trade agreement” just to get a carbon tax. The better approach is probably going to be some sort of mutual taxation/tariff/duty pledge. Something where all the countries that opt in would levy a duty of some sort on all goods that involve carbon emissions in their lifecycle outside the transportation of said goods (this is a trade agreement after all), and waive that duty on all member nations’ exports.
When people hear “free trade” they think of a system that waives all import duties, which may or may not be what is desired here. I can think of some bad actors passing a “carbon tax” just to get all the other duties on their goods dropped.
The alternative of course would be an actual free trade agreement but with a lot more qualifications than just “carbon tax.” Like union support, a living minimum wage, free education through age 18 (for example), environmental protections, reasonable intellectual property protections, no wars of aggression, etc etc., PLUS a carbon tax.
When people hear “free trade” they think of a system that waives all import duties, which may or may not be what is desired here. I can think of some bad actors passing a “carbon tax” just to get all the other duties on their goods dropped.
Honestly, this is exactly what I was thinking when I formulated this question. While I agree with your comprehensive list, we may not have time for that. Even a 10 or 20 year deal of a “carbon tax free trade agreement” may be all we need to course correct. If it is effective (at curbing carbon emission and as a political tool) a new FTA with the qualifications you listed could be crafted. The more qualifications, the slower nations would be to adapt/enroll and I’d be wary of adding too many if the goal is fast action now.
Bad actors’ intent matters little, as long as their actions align with world goals.
This gives advantage for countries that don’t join such agreement, e.g. China.
I don’t think it would, but certainly worth discussing. Countries in the FTA would have an incentive to put tariffs on products produced outside the FTA zone to bring them inline with ‘carbon taxed’ prices. These tariffs would be legal to impose until the country joins the carbon tax FTA. Countries that don’t join the FTA would (or at least could) have trouble exporting products into the FTA zone which would give them incentive to join or risk economic harm.
So, China might make equivalent of FTA, but without carbon taxes. And saying that “our FTA” would tax more if the product originated outside of “our FTA” simply means tariff wars, since the countries outside of our FTA would tax our goods more.
On top of this, countries have tariffs for reasons, including protecting internal production and revenue collection. Getting into “our FTA” means that they lose those benefits.
TLDR: It is not that simple, and not clear cut that it will work overall.
How so?
At some point the benefits of being in it would exceed the the gain from carbon externalities, but I don’t know what that point would be exactly.
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Countries within the FTA obviously will not want their carbon taxed products competing with ‘polluted products’. This gives countries in the FTA an incentive to place tariffs on goods produced outside the FTA. This would make it difficult or expensive to export into the FTA if a country isn’t a member. The benefits are the access to the FTA markets (more or less).
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But then the rule that it involves tarrifs against non-FTA countries means there is a downside to it. Suddenly the utility graph has a big zone that’s below zero.
In what I was suggesting, there are no required tarrifs between the non-FTA and FTA countries. The only requirement would be that within the FTA there are no tariffs. Presumably the trade laws between a non-FTA and FTA country would remain the same, and might have a slight increase to compensate for the internal carbon tax.
I’m sure this small clarification doesn’t actually make much of a difference on your larger point. I’m clearly not a trained economist. I appreciate your response, but there are a few things over my head. Do you have good suggested reading/videos for “Network Effect Problems” or “Utility Graphs”? Or should I just search around?
No, for very very obvious reasons.
I love this idea.
I would definitely support it.
In theory yes, but aid he suspicious that it was rigged to benefit the rich.
I like the principle, and we already have the carbon tax, but even I think free trade can be a double edged sword. What if North Korea (or substitute Afghanistan, if you like NK) joins? Are we just going to start sending them goodies?
This gives advantage for countries that don’t join such agreement, e.g. China.
Carbon taxes/credits are a fucking joke.
Suggest something better.
Phasing out fossil fuels entirely and quickly for starters…
How? Are you going to put ambulances out of service because they burn gas? I’m guessing not, so there’s one exception. Eventually you’ll have so unmanageably many exceptions you’ll wish you had just used a tax to encourage the transition.
Constructing economic incentives is generally more effective at driving desired actions than completely disallowing things. It also allows for ‘crowd sourcing’ the decision making process for what is low hanging fruit and what is difficult or ‘expensive’ things to change.
Exactly. Like, you could theoretically make the call for every single use case as the government, but in practice that’s really hard and hasn’t ever worked out well. I have as much of a bone to pick with our economic system as the next Lemming, but markets are actually very good at adequately meeting (effective) demand without incurring unnecessary cost.
