Climate change policy is in flux. At the G7 meeting in Taormina, Donald Trump refused to commit to the Paris climate agreement goals and it now looks like he might set to withdraw the US from the agreement. It is also reported that the European steel industry and the Visegrad countries are trying to water down carbon emission goals.
Finding a solution to the emissions issue without either handicapping local industry or embarking on endless subsidies has proven challenging. But it need not be.
The problem lies in the approach of taxing production rather than consumption. Taxing carbon emissions by European or American industry will render some uncompetitive, export jobs to countries that have lower emission standards and end up doing nothing for climate change – since goods will still be produced elsewhere and emissions will continue to rise.
The cleanest solution is to tax carbon consumption rather than production. If every product produced anywhere in the world had to be labelled with its carbon content and was taxed accordingly – higher carbon content would result in a higher carbon tax on the product – then consumers would slowly be steered away from high carbon content goods wherever they were produced.
Industries in countries that had higher environmental standards would be more not less competitive. Including the emissions associated with transportation of goods would further favour domestic production.
This suggestion is not new. Philippe Legrain suggested it in 2014. Why has nothing moved in this direction?