Exporting Externalities

British Columbia’s carbon tax legislation is touted by advocates as a clear success. The fact that the province has reduced carbon consumption without economic fallout is encouraging but doesn’t tell the whole story. Left unaddressed is the possibility of exporting carbon emissions. Businesses which have a national or international presence are likely to do their emitting where it’s cheapest. Like the whack-a-mole game, the monster may have simply moved to another den. B.C. may be reducing emissions only at the expense of raising them elsewhere.

Australia’s national carbon tax takes this logic into account. Policy makers realized that taxing carbon in Australia created exposure to competition in industries with high carbon emission rates. That’s why they have awarded billions per year of free Carbon Units to heavy industrial companies. Those companies stay competitive in international markets such as steel, cement, and petroleum refining only because of the free passes. If they were required to pay the carbon tax at the normal rate, the international market would quickly favor imports, and the emissions would simply move to carbon friendly nations.

The statistics from Australia are not unequivocally interpreted, but total emissions have apparently been reduced. If the carbon tax has been a modest success, then it is better than inaction. Yet the policy seems like a half-measure in that it excludes precisely those companies which are the most addicted to carbon emission.

Multinational corporations have shown that they aren’t afraid to export pieces of their value chain which are much cheaper in less scrupulous parts of the world. Hence the labor scandals that have plagued technology companies in recent years. While tariffs seem the likely response to these concerns, such an approach begins to lose the attractive simplicity which a carbon tax is designed to provide. Instead, it threatens to set up a cat and mouse game of regulation in which administrative agencies are forced to continuously pursue carbon emissions with an ever increasing density of tax code.

Ultimately, highly visible policy changes like in British Columbia and in Australia set precedents likely to be pursued elsewhere in the progressive and post-industrial world. That makes them better than inaction. Yet industrialization in other parts of the world proceeds apace, and nations such as China have repeatedly shown their willingness to absorb environmentally irresponsible business practice as it is squelched in the west.


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