Most carbon tax proposals include a border adjustment to protect American industry from foreign competition. Yet research suggests that benefits won't extend to consumers.

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Most economists agree that the best way to reduce carbon dioxide emissions that cause global warming is by implementing a carbon tax, and making it more expensive to buy products and services with a high carbon content. Yet by putting a price on carbon, countries may drive up costs for domestic businesses, putting them at a competitive disadvantage to foreign competitors from countries where no carbon price exists.

Two experts in climate law and economics look at the most commonly proposed solution to protect American businesses from the competitive impacts of a carbon tax. The solution, known as a border adjustment, would ensure that American and imported goods are subject to the same carbon price.

The tool seems simple enough, and in fact every carbon tax proposal in Congress this year features a border adjustment. Yet research suggests that the economic protections promised by border adjustments may not be as great as commonly assumed.

David Weisbach is a professor of law at the University of Chicago. Sam Kortum is an economics professor at Yale University. Their work has focused on the role of taxation in addressing climate change, and potential competitive implications of a carbon tax.

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The Essential Role of Negative Emissions in Getting to Carbon Neutral  https://kleinmanenergy.upenn.edu/policy-digests/essential-role-negative-emissions-getting-carbon-neutral

Will COVID-19 Permanently Change the Energy Sector  https://kleinmanenergy.upenn.edu/blog/2020/05/29/will-covid-19-permanently-change-energy-sector

Robust Carbon Markets: Rethinking Quantities and Prices in Carbon Pricing  https://kleinmanenergy.upenn.edu/policy-digests/robust-carbon-markets

Most carbon tax proposals include a border adjustment to protect American industry from foreign competition. Yet research suggests that benefits won&apos;t extend to consumers.---Most economists agree that the best way to reduce carbon dioxide emissions that cause global warming is by implementing a carbon tax, and making it more expensive to buy products and services with a high carbon content. Yet by putting a price on carbon, countries may drive up costs for domestic businesses, putting them at a competitive disadvantage to foreign competitors from countries where no carbon price exists.Two experts in climate law and economics look at the most commonly proposed solution to protect American businesses from the competitive impacts of a carbon tax. The solution, known as a border adjustment, would ensure that American and imported goods are subject to the same carbon price.The tool seems simple enough, and in fact every carbon tax proposal in Congress this year features a border adjustment. Yet research suggests that the economic protections promised by border adjustments may not be as great as commonly assumed.David Weisbach is a professor of law at the University of Chicago. Sam Kortum is an economics professor at Yale University. Their work has focused on the role of taxation in addressing climate change, and potential competitive implications of a carbon tax.Related ContentThe Essential Role of Negative Emissions in Getting to Carbon Neutral  <a href='https://kleinmanenergy.upenn.edu/policy-digests/essential-role-negative-emissions-getting-carbon-neutral'>https://kleinmanenergy.upenn.edu/policy-digests/essential-role-negative-emissions-getting-carbon-neutral</a>Will COVID-19 Permanently Change the Energy Sector  <a href='https://kleinmanenergy.upenn.edu/blog/2020/05/29/will-covid-19-permanently-change-energy-sector'>https://kleinmanenergy.upenn.edu/blog/2020/05/29/will-covid-19-permanently-change-energy-sector</a>Robust Carbon Markets: Rethinking Quantities and Prices in Carbon Pricing  <a href='https://kleinmanenergy.upenn.edu/policy-digests/robust-carbon-markets'>https://kleinmanenergy.upenn.edu/policy-digests/robust-carbon-markets</a>

Energy Policy Now offers clear talk on the policy issues that define our relationship to energy and its impact on society and the environment. The series is produced by the Kleinman Center for Energy Policy at the University of Pennsylvania and hosted by energy journalist Andy Stone. Join Andy in conversation with leaders from industry, government, and academia as they shed light on today's pressing energy policy debates.

Energy Policy Now

Energy Policy Now offers clear talk on the policy issues that define our relationship to energy and its impact on society and the environment. The series is produced by <a href="https://kleinmanenergy.upenn.edu/podcast/">the Kleinman Center for Energy Policy</a> at the University of Pennsylvania and hosted by energy journalist Andy Stone. Join Andy in conversation with leaders from industry, government, and academia as they shed light on today's pressing energy policy debates.

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