There is nowhere to hide. Whether you are being baked in Athens, Rome, Phoenix, or Tehran, or drenched in Beijing or Delhi, climate volatility is not far from you. With global talks on climate change going nowhere, countries and regions are feeling the pressure to do something on their own, rather than waiting for global agreement. Action is usually good, but some of it has serious adverse spillovers on other countries, especially poor ones. Uncoordinated action can be profoundly unfair.
Europe is probably most advanced among regions in taking action against climate change, with its cap and trade scheme for emissions (EU ETS). Fearing that EU companies that pay the implicit carbon tax will be at a disadvantage to foreign firms, and even choose to shift production abroad, the EU has settled on a carbon border adjustment mechanism (CBAM), which will levy a border tariff on imported goods, proportional to the untaxed emissions on the imports. Both the direct emissions from a company’s production and the emissions that were generated in the power it uses will be tariffed.
The US has its own approach. Rather than taxing emissions, it will subsidise clean energy use and generation with nearly $400bn of tax incentives, grants, and loan guarantees under the Inflation Reduction Act. Since some of these schemes are open-ended, the actual funding may be substantially more. To ensure its producers do not decamp to the US, the EU is trying to match some of these subsidies with its €2tn post-Covid recovery fund.
Finally, for many developing countries damaged by Covid and food inflation, budgets are tight. For now, there is little prospect of climate action funding coming from industrial countries despite past promises. Given that developing countries in the global south will bear much of the effects of climate change, and given that environmental disruptions will probably get much worse before they get better, developing countries are better off spending their own funds on adaptation — moving people to higher ground, shifting farmers to hardier crops, or reviving traditional water storage techniques — than on reducing emissions.