| Abstract: |
The failure of carbon regulation in the U.S. Congress has undermined
international negotiations to reduce carbon emissions. The global stalemate
has, in turn, increased the likelihood that vulnerable developing countries
will be severely damaged by climate change. This paper asks why the tragic
American impasse has occurred, while the EU has succeeded in implementing
carbon regulation. Both cases have involved negotiations between relatively
rich "Green" regions and relatively poor "Brown" (carbon-intensive) regions,
with success contingent on two factors: the interregional disparity in carbon
intensity, which proxies the extra mitigation cost burden for the Brown
region, and the compensating incentives provided by the Green region. The
European negotiation has succeeded because the interregional disparity in
carbon intensity is relatively small, and the compensating incentive (EU
membership for the Brown region) has been huge. In contrast, the U.S.
negotiation has repeatedly failed because the interregional disparity in
carbon intensity is huge, and the compensating incentives have been modest at
best. The unsettling implication is that an EU-style arrangement is infeasible
in the United States, so the Green states will have to find another path to
serious carbon mitigation. One option is mitigation within their own
boundaries, through clean technology subsidies or emissions regulation. The
Green states have undertaken such measures, but potential free-riding by the
Brown states and international competitors seems likely to limit this
approach, and it would address only the modest Green-state portion of U.S.
carbon emissions in any case. The second option is mobilization of the Green
states’ enormous market power through a carbon added tax (CAT). Rather than
taxing carbon emissions at their points of production, a CAT taxes the carbon
embodied in products at their points of consumption. For Green states, a CAT
has four major advantages: It can be implemented unilaterally, state-by-state;
it encourages clean production everywhere, by taxing carbon from all sources
equally; it creates a market advantage for local producers, by taxing
transport-related carbon emissions; and it offers fiscal flexibility, since it
can either offset existing taxes or raise additional revenue. |