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Political support and momentum for the idea is growing: French president Emmanuel Macron called for a carbon tax at European borders to ensure a level playing field for EU industries. IMF chief Christine Lagarde stated that the fund supported a mechanism of internalising external costs and a carbon tax. This was further developed by Nobel-winning economist Paul Krugman, who said that such a tax would be both legal and economically sound.
Cécile Toubeau, better trade and regulation director at T&E, said: “The onus is on countries with the resources and technical capacity to adopt domestic measures necessary to avert dangerous climate change. The carbon border tax adjustment can level the playing field between entities inside and outside developing countries taking action on climate change.”
Countries should also counteract the climate impact of growing trade flows by levying a carbon tax on Foreign Direct Investment (FDI) income derived from coal, oil and gas extraction, the report recommends. States – especially those that position themselves as climate leaders – should have to account for the carbon intensity of their trade.
In 2014, Dutch, British and Norwegian companies earned €48 billion on outward FDI from oil and gas. Yet as part of the Paris climate agreement, these and other developed countries have committed to support developing countries in reducing their emissions. To incentivise this, the report calls for companies in developed countries to report and pay a tax on carbon dioxide equivalent to emissions associated with their FDI income.
Paul Keenlyside, who authored the report on behalf of the Trade Justice Movement and T&E, said: “Every year, huge outward investments flow from developed countries to oil, coal and gas production overseas. Yet almost every developed country has pledged to support low-carbon development internationally. A tax on FDI incomes from fossil fuels would acknowledge this contradiction and provide climate mitigation finance to developing countries who need it to grow in a less carbon-intensive way.”
Finances raised from a CBTA or a tax on FDI income could be set aside to help properly resource existing climate funds which support adaptation and mitigation measures in low-income countries.