Professor Paul Krugman of The New York Times has what in my opinon is a great economics op-ed in today’s paper, one called “Wonking Out: Two Cheers for Carbon Tariffs.” He explains how Carbon Tariffs and Carbon Border Adjustment Mechanisms (CBAM) are like a VAT and how while this is a tremendous step forward, given the way accounting is now done, it doesn’t directly incentivize countries like China to clean up their act in their domestic economy.
This is, again in my opinion, one of the best pieces Dr Krugman has written. But, of course, I’m seriously interested in climate policy.
The only bit I wonder about is why this kind of mechanism can’t deal with domestic economic emissions. After all, aren’t greenhouse gas emissions an export? Sure, they are not destined to any particular port of receipt. Rather they are destined everywhere. But can’t a CBAM mechanism penalize exporters from a host country which has prodigious emissions by an amount proportional to those emissions?
Moreover, such a mechanism could well be used to reduce packaging and other waste, since these have significant upstream emissions in their production. It would also help — although not solve — working the problem of developing a circular recycling economy. It would also reduce consumption.