Three Reasons Why Carbon Tariffs Threaten American Prosperity

Following the EU’s introduction of its “carbon border adjustment mechanism” (CBAM), activists have called for the U.S. to implement a similar carbon tariff. The U.S. should reject carbon tariffs because they are blunt policy tools blighted by inefficiencies and threaten American prosperity.

ONE: A carbon tariff is a gateway to a carbon tax:

  • A carbon tariff is a carbon tax on foreign goods; its adoption would mark a significant step toward an eventual carbon tax on all goods within the American economy.
  • As the world’s largest economy, the U.S. plays a key role in normalizing and legitimating economic ideas through its adoption or rejection of economic policies.
  • Adopting a European-style carbon tariff would constitute an enormous global expansion of a tax on extraterritorial carbon emissions.
  • Its adoption in the U.S. would incentivize other countries to implement similar policies, thereby further subjecting American exports to a foreign carbon tax.

TWO: A carbon tariff is a crude policy because there is no common way to price emissions:

  • The Obama Administration initially assessed the social cost of carbon to be $43/ton, while the Trump Administration estimated the cost to be $7/ton or less.
  • The Biden Administration’s Environmental Protection Agency has suggested a cost of $190/ton.
  • The cost of the EU’s CBAM is linked to the price of the EU’s emission trading scheme (ETS).
  • But the EU’s ETS price is typically several multiples of the price of carbon in China’s ETS.
  • Uruguay has a carbon tax of $156/ton of carbon, while Estonia prices carbon at $2.17/ton.
  • This uncertainty risks heaping an inefficient and uncalibrated tariff on the American economy.

THREE: A carbon tariff ignores the Chinese Communist Party’s (CCP) worst abuses:

Through the expanded use of natural gas, the U.S. has demonstrated that it is possible to achieve economic growth, environmental protection, and emissions reductions. By paving the way for an inefficient global carbon tax and ignoring the CCP’s most egregious abuses, a carbon tariff poses a threat to American prosperity.

Join The

By providing your information, you become a member of America First Policy Institute and consent to receive emails. By checking the opt in box, you consent to receive recurring SMS/MMS messages. Message and data rates may apply. Message frequency varies. Text STOP to opt-out or HELP for help. SMS opt in will not be sold, rented, or shared. You can view our Privacy Policy and Mobile Terms of Service here.