Would you support your country joining an 'open invite' Free Trade Agreement with the only stipulation being the implementation of a Carbon Tax?
Would you support your country joining an 'open invite' Free Trade Agreement with the only stipulation being the implementation of a Carbon Tax?
The way I see it, the major barrier to countries implementing carbon taxes is the fear their economic competitors won't do the same, therefore hindering their economic growth needlessly. A valid concern.
Why don't some nations build an 'opt in' style Free Trade Agreement that allows any country to join as long as they prove they have implemented and enforced a carbon tax. Those countries then have high financial incentives to only trade within the 'carbon tax block' and any country outside is at a serious trade disadvantage.
I've (quickly) looked and have not found anything like this proposed (which is frankly crazy).
Would you support your country jumping into this FTA?
What are the unforeseen downsides or objections to a plan like this?
With which nations? A Free Trade Agreement isn't something universally good.
You wouldn't get to pick 'which nations'. What I'm describing would be a blanket statement: If you implement a carbon tax you can sign into this Free Trade Agreement club. Any nation in that club automatically has the same FTA with every other country.
"A Free Trade Agreement isn't something universally good." - Totally agree, but I think we can also agree that it would create an incentive for countries within the agreement to trade more with each other than with outsiders. It would also provide an incentive for the outside countries to join the club (specifically after it has reached some critical mass).
Industries within countries could definitely be negatively effected because of the FTA. I get that. All industry will be negatively effected if climate change isn't curbed though. This seems like a way to make a tangible policy today that builds economic incentives for a carbon free future. It does not require full world 'sign off' before you start. It can start with just two countries drafting this open-invite FTA and allow any other country into the club once they've proven they have a carbon tax.
Would need a few more stipulations than just a carbon tax.
Labor rights would be important too. One country that uses slave labor to build stuff, and dumps toxic waste into the ocean, but just tacks on a few $ in carbon tax for their big carbon belching systems still wouldn't be good for anyone.
Probably would be ok with a general human and nature rights treaty, where there is free trade as long as the overall impact of the economy in all aspects is at least neutral.
I guess this might be an incentive for some developing nations.
But FTA agreements also come with a lot of strings attachted.
For example, I would not want an FTA agreement with the US, regardless. They usually require the partner nations to enforce US copyright law. Also we already have higher consumer product standards and I doubt the US will raise theirs to comply.
This gives advantage for countries that don’t join such agreement, e.g. China.
I don't think it would, but certainly worth discussing. Countries in the FTA would have an incentive to put tariffs on products produced outside the FTA zone to bring them inline with 'carbon taxed' prices. These tariffs would be legal to impose until the country joins the carbon tax FTA. Countries that don't join the FTA would (or at least could) have trouble exporting products into the FTA zone which would give them incentive to join or risk economic harm.
So, China might make equivalent of FTA, but without carbon taxes. And saying that "our FTA" would tax more if the product originated outside of "our FTA" simply means tariff wars, since the countries outside of our FTA would tax our goods more.
On top of this, countries have tariffs for reasons, including protecting internal production and revenue collection. Getting into "our FTA" means that they lose those benefits.
TLDR: It is not that simple, and not clear cut that it will work overall.
How so?
At some point the benefits of being in it would exceed the the gain from carbon externalities, but I don't know what that point would be exactly.
It might be a big tripping hazard to go full "free trade agreement" just to get a carbon tax. The better approach is probably going to be some sort of mutual taxation/tariff/duty pledge. Something where all the countries that opt in would levy a duty of some sort on all goods that involve carbon emissions in their lifecycle outside the transportation of said goods (this is a trade agreement after all), and waive that duty on all member nations' exports.
When people hear "free trade" they think of a system that waives all import duties, which may or may not be what is desired here. I can think of some bad actors passing a "carbon tax" just to get all the other duties on their goods dropped.
The alternative of course would be an actual free trade agreement but with a lot more qualifications than just "carbon tax." Like union support, a living minimum wage, free education through age 18 (for example), environmental protections, reasonable intellectual property protections, no wars of aggression, etc etc., PLUS a carbon tax.
When people hear “free trade” they think of a system that waives all import duties, which may or may not be what is desired here. I can think of some bad actors passing a “carbon tax” just to get all the other duties on their goods dropped.
Honestly, this is exactly what I was thinking when I formulated this question. While I agree with your comprehensive list, we may not have time for that. Even a 10 or 20 year deal of a "carbon tax free trade agreement" may be all we need to course correct. If it is effective (at curbing carbon emission and as a political tool) a new FTA with the qualifications you listed could be crafted. The more qualifications, the slower nations would be to adapt/enroll and I'd be wary of adding too many if the goal is fast action now.
Bad actors' intent matters little, as long as their actions align with world goals.
What wound be the benefits of belonging to this free trade agreement?
Countries would still have economic competition from countries outside the free trade agreement, unless part of the agreement is actively restricting trade from countries not in the agreement.
Countries within the FTA obviously will not want their carbon taxed products competing with 'polluted products'. This gives countries in the FTA an incentive to place tariffs on goods produced outside the FTA. This would make it difficult or expensive to export into the FTA if a country isn't a member. The benefits are the access to the FTA markets (more or less).
So then your problem is that access to the FTA markets comes with barriers to the non-FTA markets.
Then you’ve got a network effect problem. Let’s say one country declares it’s the new FTA starter. What does the second country’s situation look like then?
If the second country joins the FTA, then its effects will be:
- Trade access to the small FTA market
- Trade barriers to the non-FTA market
What you did with the opt-in idea is found a solution for some of the incentive barriers to this agreement. Sort of an incremental growth approach which is more likely to succeed than an all-or-nothing approach.
But then the rule that it involves tarrifs against non-FTA countries means there is a downside to it. Suddenly the utility graph has a big zone that’s below zero.
This is a really hard problem (one that is historically solved by armies forcibly consolidating territory into unified political units), and I hope you keep working on it.
I love this idea.
I would definitely support it.
No, for very very obvious reasons.
In theory yes, but aid he suspicious that it was rigged to benefit the rich.
I like the principle, and we already have the carbon tax, but even I think free trade can be a double edged sword. What if North Korea (or substitute Afghanistan, if you like NK) joins? Are we just going to start sending them goodies?
If you "like" North Korea you should have your carbon taxed.
Just stay away from Hexbear and you'll not have to worry about those types.
That would depend on where the money from that tax goes, how it's enforced, and how that organization is set up to reduce corruption.
I'm all for it on paper, but I'm not expecting something like this to actually happen and work in the real world.
All valid points. Compliance would have to be a staple, which makes enforcement and oversight critical.
Where would you want the tax revenue to go in your country?
Personally, I'd be happy with a blanket tax return. Take the money generated by last year's carbon tax, divide it by the number of tax payers, and call it a day. Since wealthy people typically have a higher carbon impact (pay more into the tax), this would average out to a small redistribution of wealth towards the less fortunate.
This gives advantage for countries that don’t join such agreement, e.g. China.