Common Tragedies

Thoughts on Environmental Economics

The case for carbon consumption caps

Posted by Rich Sweeney on December 17, 2007

Judith Chevalier lays out the case for carbon consumption caps in Sunday’s NYTimes. Carbon consumption caps would solve the international leakage problem as well as insulate American workers from competition from countries without climate policy. Such an approach would also provide producers in developing nations with the incentive to become greener now, even though their governments may be decades away from enacting economy wide carbon restrictions. For these reasons, I agree a carbon consumption cap is an “elegant” solution – in theory. But I do have a couple questions about how, and if, it could work in practice.

  1. Is this possible under the current WTO rules? Chevalier mentions but glosses over this point at the end. My guess is that many LDCs would consider this an unfair tariff. It’s also a slippery slope to use trade policy to achieve political goals. What’s next, linking imports to labor standards?
  2. Is this type of regulation economically and informationally feasible? It seems like this would involve a substantial amount of regulatory oversight and a very costly labeling, monitoring and tariffing bureaucracy. Also, many imported goods are made of components from several countries. When would the tariff be applied?
  3. Finally, would such an approach even significantly curb net Chinese emissions? By taxing exports only, it seems just as possible that the effects of domestic leakage, from exporting to non-exporting sectors, could dominate.

One Response to “The case for carbon consumption caps”

  1. Is there any use of trade policy other than “to achieve political goals”? But I agree with your implication, if I’m reading it right, that we should resist the temptation to expand the range of reasons to jigger with tariffs and other trade restrictions.

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