There are a bunch of indications that one of the things that may have to be done to get a climate bill through the senate is the inclusion of some kind of “carbon tariff” to prevent a cap-and-trade program from disadvantaging US-based manufacturers vis-à-vis their developing world rivals. In theory, the carbon border adjustment idea makes a lot of sense, but almost everyone I speak to is skeptical that it would actually work correctly in practice as opposed to becoming a venue for a lot of gamesmanship.
One reason for skepticism is that I’m actually skeptical that a properly implemented set of worldwide carbon border adjustments would actually achieve its intended purpose of boosting American manufacturing. After all, despite all the China hype we do much more trade with developed countries—countries with considerably less carbon-intense economies. Combining data from here and here I present the following chart of leading trade partners:
The EU, Canada, and Japan are in the aggregate much more significant trade partners than China/Mexico/Brazil. And the case for them charging us carbon tariffs seems about as good as the case for us charging the Chinese.