A carbon border tax will harm the poor world the most
To tackle climate change, rich nations are promising to end fossil fuel use in 29 years. As this becomes excruciatingly costly, the G7 is now thinking about making the world’s poor pay for it with carbon taxes. That will go badly.
The rich world has seen an incredible development on the back of enormous increases in mostly fossil fuel energy. A couple of hundred years ago, most available power came from backbreaking human work. Even by the end of the 1800s, human labor made up 94% of all industrial work in the United States. Today, it constitutes just 8%.
If we think of the energy we use in terms of “servants,” each with the same work power as a human being, every person in the rich world today has access to 150 servants who clean, cook, drive, heat and do almost everything else for them.
Despite green protestations, rich people still get 79% of their energy from fossil fuels. Ending that will be hard, socially destabilizing and surprisingly ineffective.
To see how difficult, take the UN’s recent pronouncement that our Paris promises really mean reducing world emissions 7.6% every year this decade. The UN cheerfully notes this was almost achieved in 2020 with the global COVID shutdowns.
But this year, we need twice the reduction, equal to two shutdowns. And three in 2022, ending with the equivalent of eleven global shutdowns every year from 2030. Economic models show this will cost tens of trillions of dollars annually.
It will also destabilize rich countries. They have seen their per-person growth rates decline — in Europe, it is now edging toward zero. As climate policies reduce growth further, this will threaten long-term social coherence as people realize their children won’t be better off and pensions wither.
Moreover, the cuts will matter little for the climate. Even if all OECD nations cut their entire CO₂ emissions today, the standard climate UN model shows it will reduce warming by 2100 just 0.8°F.
The reason? Six billion not-rich people also want access to plentiful and cheap energy, lifting them out of hunger, sickness and poverty. They are more concerned about economic growth that will create welfare and resilience against disease and even climate change.
Unfortunately, climate policies harm the developing world. Because they increase energy costs, they slow economic growth. Implementing the current Paris Agreement will mean lower growth and that fewer people will get out of poverty. If we aim for 2°C, a recent peer-reviewed study shows it will mean at least 80 million fewer people will escape poverty by 2030.
Now, rich countries want the world’s poor to pay the costs through carbon taxes. The UK is pushing such tariffs as a key priority of its G-7 presidency, and the proposal is falling on sympathetic ears in the United States, Europe and Canada.
As the United States and Europe drive up energy costs, more businesses will escape to less-burdened areas like China, India and Africa. Slapping a border tariff on imports according to their underlying emissions reduces that move.
But such tariffs also make it harder for the developing world to compete, because most rich countries use carbon more sparingly. Globally, these tariffs are inefficient and make climate policies even costlier. But crucially, they act as back-door protectionism for rich countries.
For the rich world to cut 20% of its emissions, a standard model shows it will cost them $310 billion a year. Using carbon tariffs, the rich world can instead end up $400 billion better off, making $90 billion by forcing businesses to move back to the rich world. Instead, they impose more than half a trillion in extra costs onto the world’s poor. As one highly quoted study concludes, “the main effect of carbon tariffs is to shift the economic burden of developed-world climate policies to the developing world.”
The EU and others believe that higher tariff threats will force the developing world to adopt their own costly climate policies. This could be a disastrous misjudgment.
If the US were to implement a national $40 tax per ton of carbon, one recent study shows this would cost $73 billion yearly in lost growth. If the US also decided to force Chinese exports to pay tariffs equivalent to this carbon tax, it would confer a loss on China of $24 billion. But this wouldn’t help push China to implement its own $40 carbon tax domestically, because that would cost the Chinese an eye-watering $210 billion a year.
This article appeared on the Daily News website at https://www.dailynews.com/2021/04/19/a-carbon-border-tax-will-harm-the-poor-world-the-most/amp/]]>