The Paris Accord and Carbon Tariffs

Since President Trump announced the U.S. withdrawal from the Paris Accord there has been talk of other countries imposing “carbon tariffs” in response. The politics of this are hard to predict. I think (and hope) that such tariffs are unlikely, although if the United States starts imposing tariffs for “national security” reasons, the chances of other countries imposing carbon tariffs on us may go up.

But there is also an international legal question here: Wouldn’t carbon tariffs violate international trade obligations under the World Trade Organization or other trade agreements? There is some dense legal analysis of this question out there already (back when it was people in the U.S. talking about imposing these measures on others, Cato’s Sallie James published a good Policy Analysis of the issue). What I’m going to offer here is a short, non-legalistic explanation, which basically amounts to:  It depends on how exactly the other countries go about formulating these “tariffs.”

At one extreme, you can imagine some government somewhere being so angry with the U.S. withdrawal that it imposes an across-the-board import tariff on all U.S. imported products as a response. This blunt approach would almost certainly violate trade agreement rules.

At the other extreme, you can also imagine a more measured approach, under which a government comes up with objective criteria to assess each country’s climate policies and carbon emissions. Carbon taxes would then be imposed on products, both domestic and foreign, in a way that corresponds to these measurable criteria.  This non-discriminatory approach might not violate trade rules, especially if its focus is on environmental impact, rather than “competitiveness.”

The actual approach is likely to be somewhere in between, and is hard to assess in the abstract.  But in general terms, here is my view:  In theory, some form of “carbon tariff” could be done consistently with trade rules.  However, in practice such a measure is likely to violate, as governments generally aren’t very good at being precise, objective, and non-discriminatory in their laws and regulations.  But hopefully everyone will decide not to impose such measures, and the subject will remain an obscure academic one.