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Why The E.U.’s Carbon Border Tax is a Very Bad Idea – by Henry Olsen - Washington Post – 15.12.22

The European Union’s recent decision to impose tariffs on select carbon-heavy imports such as steel and cement is a long-sought victory for climate activists. But the United States should not follow suit. These measures are likely to both increase global human suffering and strengthen China.

Unlike with normal tariffs, the E.U. will not apply equal charges to the same sorts of goods; instead, E.U. member nations will estimate how much carbon was directly or indirectly consumed in the product’s creation. That means firms in nations with more carbon-intensive energy consumption will pay higher rates than those that rely more on renewable energy sources.

The intent is simple: Use the market power of wealthy nations to push other parts of the world to invest in cleaner sources of energy. Nations that comply will see their firms rewarded with de facto preferential trade treatment; those that do not will face a price disadvantage. As a result, proponents argue, developing economies will be incentivized to bite the bullet and make the changes European nations want.

But this seems to be a matter of hope triumphing over experience. Many developing nations use coal to generate electricity because it is significantly cheaper than other options. And they might not have the money to finance a rapid switch-over to fuels that emit less greenhouse gas, such as natural gas. Many nations might choose to face the economic costs the tariffs will impose rather than expend scarce capital for new — and possibly more expensive — energy plants.

It will likely be even harder for them to switch to renewable power sources such as wind or solar, which are capital intensive and often require large public subsidies to remain economically viable. Rich nations can afford that, but places such as Bangladesh probably cannot afford it at the scale needed. That means serious energy transition in the developing world would likely take large quantities of Western capital. That’s not likely to happen, especially if government money or guarantees are needed to spur that investment. Voters are not likely to tax themselves to pay foreigners to compete with them.

These considerations likely mean the E.U.’s tariffs will slowly encourage firms to produce energy-intensive goods in the developed world. That on-shoring might help workers in those countries with the return of relatively high-paying jobs. But it also means consumers in those countries will pay more for previously imported goods, as labor and energy costs cause prices to rise. This transfer of wealth from one class to another will be difficult to manage, especially if it happens as rapidly as climate activists hope.

Developing countries will feel lots of pain as a result. Jobs that once pulled their citizens out of poverty will disappear. Globalization unsettled the developed world, but it was a boon for poorer nations. In 1990, more than a third of the world lived in extreme poverty. By 2015, that rate had fallen to less than 10 percent. Slowing or even reversing globalization will stop this progress in its tracks.

Don’t expect the leaders of these nations to go along quietly. They will look for new markets to sell products — and that’s where geopolitics comes in. China is large and rich enough to step at least somewhat into the breach. Unless China also imposes carbon-adjusted border charges, many nations will start to curry favor with it as essentially the only country that could help them. That is not in the West’s interest.

U.S. global strategy must focus on weakening and isolating China as long as it pursues its aggressive policies and remains a tightly controlled authoritarian state. Joining the E.U. in imposing green tariffs would likely have the opposite effect, strengthening China’s appeal to nations that often are not firmly democratic to begin with. It might even lead to worse results for the climate if it creates an economic bloc of countries that does not adhere to Western climate goals.

This is why rapid progress on global decarbonization is so difficult to achieve. The E.U.’s approach might be climate-wise, but it’s freedom foolish. President Biden should resist the temptation to follow Europe’s example. Instead, he should focus on the only things that can stave off the worst effects of climate change without robbing our way of life: the rapid spread of Western ideals and climate-friendly technology.

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Why The E.U
.’s Carbon Border Tax is a Very Bad Idea – By Henry Olsen -Washington Post – 15

Henry Olsen is a Washington Post columnist and a senior fellow at the Ethics and Public Policy Center. Author, The Working Class Republican.

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