Wednesday, January 13, 2010

Consumption Based Carbon Tax

An interesting proposal from Geoff Carmody for a consumption based carbon tax. It cleverly plays on protectionist sentiments and impulses by taxing the carbon content of imports and exempting exports. Every country can set its own carbon tax rate or coordinate as much as they like. I imagine this must have been proposed before. It sounds like a good idea but I can see two major pitfalls:

1. Will the WTO agree to taxing the carbon content of imports but not exports? It sounds unlikely to me.

2. Complicated accounting for embodied carbon is needed both to assess the carbon content of imports and of exports. Inputs purchased by exporters will have the carbon tax built into them and presumably this needs to be claimed back some way to symmetrically exempt exports while taxing imports. Or will only direct fuel use by exporters be counted? That can't be the case because in many cases the producer will not be the exporters. An alternative is to provide credits for exports based on an average estimate of embodied carbon - say one rate per dollar or weight for cars, another for coal etc.

What do you think?

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