Carbon Tariffs Could Bring Manufacturers Back From Asia

April 1, 2008

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Imposing carbon tariffs on China could drive some manufacturers back to North America, according to a new CIBC Coming Home (PDF), The Globe and Mail reports.

Jeff Rubin, chief strategist and economist at CIBC World Markets, and a co-author of the report, thinks that once the U.S. institutes a cap on greenhouse gas emissions, a tolerance for countries that don’t, like China, will vanish.

Rubin predicts such a tariff, based on $45 a tonne of carbon dioxide and equivalent – about the current price on the carbon trading market in Europe – would collect $55-billion annually. It equates to a 17-per cent levy on all Chinese imports to the U.S. – almost six times greater than current import tariffs.

The advantage of cheap labor that has driven manufacturers to China would disappear, according to the report. (This brings up another issue which the report discusses, by shifting manufacturing production to China and then subsequently importing Chinese-made goods, the U.S. has exported what used to be its own GHG emissions to other countries.)

The industries that might leave, according to Rubin, would be the most energy intensive – plastics, chemicals and steel.

But carbon tariffs may be a difficult proposition. “Imposing tariffs on carbon, even if it could be done in a legal trade context, would be so complicated it would become a dangerous threat to trade stability,” Canada’s Financial Post, which says a carbon tariff is a recipe for global trade wars, reports.

To figure out the appropriate tax level would require a mind-blowingly elaborate carbon-measurement scheme, created on a global scale. It would have to be able to determine how much carbon emissions are embedded in the power drill that is nominally made in China, but is actually assembled from parts made in a dozen other countries. Some of those countries may or may not have carbon control programs in place.

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Reader Comments

Perhaps the focus of GHG emmissions should not be on countries but on companies. You so rightly point out that the US has exported its GHG emmissions when manufactures went overseas and again rightly point out how difficult it would be to set carbon tarrifs in a ‘Flat World’ (homage: Tom Friedman), so again I ask: should not GHG focus be on companies at least as much as on countries?

Lynn B. Jean | April 1st, 2008

Lynn, the focus of GHG emissions is on companies, hence the GHG Protocol and ISO 14064. This article above talks specificly about tariffs which are obviously set at country levels. But the detail at the product level will be available as it is at company level.

Canadas Financial Posts comments on trade wars and incredibly complex reporting requirements are un-informed. This reporting situation is already happening in Kyoto ratified countries.

The biggest customers in domestic markets, Governments and large corporations, (who are typically the earlier adopters of carbon compliance programs) place pressure on their suppliers to comply as they equate to scope 2 and 3 emissions for a business.

This has a trickle down effect through the (cross border) supply chain as those suppliers products come under scrutiny and then in turn exert pressure on their suppliers (their scope 2 and 3 emissions).

Chris Lindley | April 2nd, 2008

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