World Resources Institute WRI

Leveling the carbon playing field

Climate change is one of the most far-reaching economic challenges of our times. Unchecked, it threatens the welfare of people around the globe. Mitigating the worst of its impacts will require mobilizing capital and technology in innovative ways that will transform the global economy. The good news is that if we do it right we can generate technologies and markets that will not only leave us a cleaner, more secure world but also create vibrant new industries and jobs. Faced with a challenge of this scale, there is a strong case for developing efficient and consistent climate policy globally. Every effort should be made to do so. But politics is always a balance of the visionary and the prosaic. Differences between countries in level of economic development, historic responsibility for greenhouse gas emissions already in the atmosphere and projected growth in emissions in the years ahead mean that climate policy will probably take different forms in different parts of the world.

In the United States, growing public awareness of the impacts of climate change has prompted states and cities to take action locally and the US Congress to start drafting major federal climate legislation. Producers of steel, cement, and other energy-intensive goods worry that such legislation, by introducing a price for carbon, will cause them to lose investment or market share to foreign competitors that do not face similar costs at home. US lawmakers, with an eye on possible job losses, have responded with proposals to either limit the price of carbon these producers face or impose similar costs on imports of carbon-intensive goods from their competitors.

This book, a collaboration between the Peterson Institute for International Economics and the World Resources Institute, looks at methods to maintain a level playing field for US industry under domestic climate policy. Through an assessment of the economics and trade flows of key carbon-intensive industries, the authors evaluate a number of proposals included in current legislation. They argue that, given the limited role of exposed sectors in the US economy, measures need to be targeted rather than comprehensive. Efforts to contain costs for carbon-intensive manufacturing, if not properly considered, can harm other industries and raise the cost of reducing emissions for the economy as a whole. There are a range of policy options, however, that reduce costs for the economy as a whole while achieving the desired environmental goals.

Using trade measures to impose similar costs on carbon-intensive imports would create both winners and losers domestically and, if imposed unilaterally, would have limited success in leveraging other countries to adopt comparable climate policy. If properly tailored, however, trade measures can create incentives for foreign companies to clean up their act. All options need to be assessed according to whether they help or hurt the prospects for ultimately creating an effective and fair international regime—the only sure way in the long term to address both climate change and competitiveness concerns.

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