The U.S. Makes Carbon Pricing More Complicated Than It Needs to Be
The Washington Post and Bloomberg publish an opinion piece that includes a detailed reference of RFF work on border carbon adjustments.
William Pizer and Erin Campbell of Resources for the Future have outlined how this could work. The U.S. would estimate the effects of other policies, apart from pricing, that affect carbon emissions. “Here, we bump into the particularly tricky issue with nonprice policies: prices are not observed,” the authors note. “Nonetheless, there are several alternative solutions.” Imagine, for example, a clean air standard for steel plants that requires lowering carbon emissions by a certain amount. An estimate of a price on carbon that could generate the same emissions reductions from steel — the implicit price that the regulation imposes — could then be the basis for a fee on imports.
Carrying out this approach would be even more complicated than in Europe. But it would have an odd political economy effect: It would indirectly reveal a carbon price for the U.S. That fact is worth highlighting, because a key reason the U.S. has been unable to impose a national carbon tax or permit trading system is skittishness over the potential political attacks it would bring.
William A. Pizer
Billy Pizer is Vice President for Research and Policy Engagement at RFF. Previously, he was the Susan B. King Professor at the Sanford School of Public Policy, Duke University. He is also a Research Associate at the National Bureau of Economic Research.