By Andy Stone
In June the European Union’s director general for trade announced that the EU is developing a carbon border levy that will be imposed on imports of carbon-intensive goods such as steel and cement. The border adjustment, part of Europe’s Green Deal to dramatically curtail carbon dioxide emissions, in part through carbon pricing, will aim to protect the bloc’s industries from cheaper foreign goods from countries where no carbon price is in place. The EU will release its finished proposal by mid-2021.
On this side of the Atlantic, the eight carbon pricing proposals now circulating through Congress all include border adjustments to protect American companies from imports not burdened by a carbon price in their country of origin. A corresponding refund of the carbon price on American exports would help ensure that American goods sold overseas are not priced out of foreign markets.
With all of the attention paid to carbon border adjustments, it would seem that they must be a good thing. Yet the full story is more complex. Border adjustments are a zero-sum game if not carefully designed, and where there are winners, there are likely those that won’t fare so well.
In an oft-cited 2016 paper, University of Chicago law professor David Weisbach and Yale economist Sam Kortum explore the impact of border adjustments on consumers.