Bob and Suzannah Ciernia
The headline states the obvious but implementing policies to that end is not. While the goal of keeping climate change in check may be universal, every nation is competing with every other nation to provide its businesses and citizens an economic advantage. What’s to be done? Do we have any historical precedents that demonstrate the major economies can work together to address a common threat?
Short answer: yes. The Montreal Protocol on Substances that Deplete the Ozone Layer was ratified by all 198 members of the U.N. in 1987. Look back through the historical record and you’ll see numerous articles in the 1970s and early 1980s on the threat posed by the loss of the Earth’s ozone layer. Why aren’t you reading such articles today? The answer is the world’s peoples acknowledged the science and their governments agreed to the Montreal Protocol.
The ozone layer continues to be closely watched by scientists who predict that it will recover by the middle of this century. (www.bit.ly/About-the-Protocol) Significantly, the U.N. reports that, compared to 1990 levels, 98% of ozone depleting substances have been phased out of use.
What’s the lesson for today’s climate crisis? It is possible for competitors to recognize a common threat and to take collective action to mitigate it.
Climate Change poses a more complex, multi-faceted challenge
Addressing ozone was relatively straightforward. The number of chemicals involved was small, the number of businesses reliant on them limited, the threat was immediate, and substitute chemicals were both available and cost-competitive.
Clearly, those statements do not readily transfer to the fossil fuels causing climate change. Economists can tell us that if you want to reduce the use of something, you need to put a price on it, and scientists can tell us (and have told us for decades) that climate change is a locomotive building up a head of steam that will be difficult to stop once fully in motion. But none of that has tipped public opinion to the point where we are willing to forego immediate comfort for a safe future.
Until now. Now, the science is evident in our day-to-day lives and an increasing number of people are saying, “Something needs to be done!”
But the people and businesses who profit from fossil fuels are not inclined to give up their source of income and the argument has often focused on “What about China?” and “What about (pick a country)?” The assumption here seems to be that we (the U.S.) were already the world leader and everyone else was trailing behind.
That’s not the case.
The E.U. has implemented a CBAM and the U.S. has not
What is a Carbon Border Adjustment Mechanism (CBAM)? The E.U. will implement a policy in 2023 that will put a price (a tariff or levy) on certain products as they enter Europe if the country of import does not have a carbon price equal to that charged in Europe. Businesses inside the E.U. are paying a tax on carbon already; the CBAM on imports is meant to level the playing field so that foreign competitors don’t have an advantage.
A simplified example. Before a CBAM: E.U. Steel Co. No. 1 pays a carbon tax of $65 per unit and puts its product on the market at $365. Foreign Steel Co. No. 1 doesn’t pay a carbon tax so it offers its product at $300. Most of us would conclude that Foreign Steel has a better shot at the contract.
After a CBAM: E.U. Steel still pays a carbon tax and still offers its product at $365. Foreign Steel, on the other hand, because its country doesn’t have a price on carbon, must pay the E.U. (the government, not the steel company) $65; it now offers its product at $365. Bottom line: the foreign company no longer has a competitive advantage. Environmental bottom line: because of its carbon pricing, the E.U. has a better chance of achieving its target of reducing emissions 55% by 2030. Governmental bottom line: the E.U. collects money it can use to fund additional carbon reducing programs.
The effect on U.S. businesses
In the scenario above, American companies shipping cement, fertilizer, iron and steel, and aluminum to the E.U. will be required to pay a CBAM because the U.S. does not have a price on carbon equal to the tax the E.U. puts on its own businesses. The relative advantage we have today will disappear once our businesses are paying the same tax Europeans already pay.
Clearly, it is to our country’s advantage to implement a policy similar to what the E.U. is doing so that we capture the tax revenue instead of them. This would be advantageous to us all around: businesses would compete on a level playing field and we’d have additional revenue to combat climate change.
What are the odds we’ll see such legislation? That really depends on how many of us tell our legislators it’s what we want! What can be said for certain is that U.S. legislators have been working on several bills that put a price on carbon and include a border adjustment similar to the E.U., thereby exempting our goods from the E.U. tariff. The strong favorite among these bills is the Energy Innovation and Carbon Dividend Act, House bill H.R. 2307, currently with 92 co-sponsors. (www.bit.ly/EICD-Act)
Should the U.S. and the E.U. align their policies regarding a carbon tax, there will be a strong incentive for the rest of the world to enact similar legislation. Much like the united front it took to address ozone depletion, it will take a global approach to address global warming. This can be done! Using evenly applied economic incentives, countries can protect both their businesses and their consumers. Additionally, as carbon intensive goods become more costly, a carbon tax coupled with CBAM will spur innovation towards a carbon-free economy.
Climate change will not be stopped by simply instituting a carbon tax with a CBAM, but a carbon tax would reduce the calamitous consequences that science strongly suggests are embedded in further inaction.
Bob and Suzannah Ciernia are co-leaders of the Vermont Citizens’ Climate Lobby At-Large Chapter.