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Issue 21
, 2010
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US carbon tariff policy

Source: Nature, Date: , 2009

In every US climate policy negotiation thus far, a major sticking point has been the issue of economic competitiveness. If the US independently imposes a price on carbon — through a cap-and-trade system or a carbon tax, for example — domestic industries automatically face higher costs than their international peers and could be at a competitive disadvantage. Rather than pay these costs, of course, US industry could relocate to countries without mandatory emissions targets. This 'carbon leakage' could cost the US jobs while failing to reduce global emissions, a lose–lose scenario.

The proposed US climate bill, America's Clean Energy and Security Act, uses two mechanisms to protect the domestic carbon-intesive industries: first, the bill aims to rebate the increased costs of carbon emissions to energy-intensive industries through free allocation of emissions allowances. Second, US industries that import energy-intensive goods from countries without a price on carbon are required to purchase emissions allowances for those goods equal to what they would have paid had the imports been manufactured domestically. This tariff, a type of border tax adjustment, ensures that importers do not gain a competitive advantage over other domestic industries.