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February 26, 2018

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Carbon limits could harm trade

Book argues that carbon tax and cap-and-trade could lead to protectionism and interfere with global trade.

A carbon tax on supply chain activities would be more "transparent" and "honest" than a cap-and-trade scheme, but both types of climate-control measures could lead to more protectionism and interfere with global trade, warns Bjrn Lomborg, author of the book Cool It: The Skeptical Environmentalist's Guide to Global Warming.

Under a cap-and-trade system, now widespread in Europe, a government issues permits that allow individual companies to emit a fixed amount of carbon dioxide. Companies that do not use up their full allotment may sell or trade their excess emissions credits to companies that have exceeded their limits. Some environmentalists have argued that a more effective measure for controlling greenhouse gases would be an outright tax on carbon-generating activities, such as manufacturing and transportation.

Both approaches could easily be turned into protectionist measures if nations with climate-control regulations were to block the importation of goods from countries without such laws. Adoption of such measures "risks wrecking free trade," said Lomborg, a professor at the Copenhagen Business School and a leading expert on the economic impact of climate-control regulation, in an exclusive interview with CSCMP's Supply Chain Quarterly.

As for a direct carbon tax, Lomborg said it would have to be set very high to prove effective in eliminating enough greenhouse gases to curtail global warming. As an alternative, the Danish economist suggests, national governments could promote such low-carbon technologies as solar power and wind energy by making them competitive with fossil fuels.

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