Will Carbon Caps Damage Industry?

June 21, 2008

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Economists who are assessing the risks to industries from various carbon tariff proposals are finding they’re not always as bad as some make them out to seem, The Economist reports.

The authors of “Leveling the Carbon Playing Field,” published recently by the Peterson Institute for International Economics, a think-tank based in Washington, DC, say the damage to industry from emissions caps would be small.

Most manufacturers, for instance, do not use much energy, the main source of emissions. Energy makes up less than one percent of the cost of making cars, furniture or computers, the report says.

A study by Resources for the Future concludes that industrial output would fall by less than one percent with a carbon price of $10 a ton. The metals industry would shrink by 1.5 percent, the report says, which could be offset by granting enough free permits to energy-intensive firms to cover just 15 percent of their emissions.

Another study under way at the Pew Centre on Global Climate Change, suggests that the politicians are over-reacting, and could be offering “remedies” that could cause a trade war, and ignoring possible benefits of carbon caps, like increased investment in energy alternatives.

Citigroup, JPMorgan Chase and Morgan Stanley announced climate change guidelines earlier this year in anticipation of the government capping GHG emissions in the coming years.

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