WASHINGTON (Sept. 7, 2017) – Economists from across the political spectrum support a carbon tax as the most efficient means to reduce greenhouse gas emissions, but not all carbon taxes are created equal. A new policy paper released by R Street Institute Associate Fellow Catrina Rorke and Energy Policy Director Josiah Neeley, examines how a carbon tax could be border-adjusted to increase its effectiveness, even as it limits the economic costs.

“Under a border-adjusted carbon tax, imports to the United States from countries without a carbon price would be taxed as if they had been produced locally,” write the authors. “By contrast, American exports to countries lacking a carbon price would be refunded the implicit amount of tax used to produce those products.”

For the purposes of establishing a border-adjusted carbon tax model, the preferred carbon policy advanced by R Street is a revenue-neutral carbon tax that reduces or displaces the corporate income tax and pre-empts unnecessary regulation. The tax is levied upstream on fuels as they enter the economy—at the refinery rack for petroleum, after processing for natural gas and after beneficiation for coal—and would be assessed in an amount of dollars per-ton of greenhouse gases emitted upon combustion of the fuel.

“Properly designed, a border-adjusted carbon tax removes the competitive international disadvantage that otherwise could plague a nation that decides to institute its own carbon price and reduces the risk of carbon ‘leakage’ to nations without effective carbon policies,” note the authors. “Though no firm conclusions may be drawn until the WTO takes up any challenge to a specific model, the preponderance of scholarly work suggests that a carbon price has the greatest likelihood of passing muster with the WTO.”

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