How America wins from a pro-climate trade policy
Whoever wins the White House in November will be confronted by a rapidly shifting world economic order and international demands to meaningfully address climate change. The future of trade negotiations, global competition and diplomacy will increasingly be influenced by climate — both its impacts and how countries choose to address it.
The president in 2021 will have a simple choice: Sit idle while other nations — such as China — impose their policies on the world, or lead and establish a new global order on climate and trade.
In the absence of a national climate strategy, U.S. businesses, which broadly produce goods with fewer emissions than their foreign competitors, are operating at a disadvantage. Many of their overseas competitors are flooding the American market with goods manufactured with fewer pollution controls and more carbon emissions, undermining both American workers and climate progress.
A well-designed climate policy can address this unfairness, help return important supply chains back to the U.S. and create more American jobs for the future. It can also serve to check China’s growing economic power and call out its practice of claiming climate progress while promoting carbon-intensive industrialization in emerging economies.
A nationwide carbon fee paired with a border carbon adjustment would deliver these benefits. Such a policy would apply a fee on the carbon content of imported goods and extend the reach of carbon pricing beyond America’s shores. This approach would instantly enhance the competitiveness of U.S. manufacturers, positioning them to grow and create jobs.
A new, first-of-its-kind study by the MacronDyn Group and commissioned by our group, the Climate Leadership Council, reveals that the U.S. economy is three times more carbon efficient than that of China and nearly four times that of India. It also compares favorably to the economies of Canada, Mexico, Korea and Japan. Of the world’s major economies, only those of the European Union are as efficient. Yet U.S. manufacturers are currently failing to reap the full benefit of their cleaner operations. With such a large “carbon advantage,” these businesses would only gain from a policy that makes less efficient foreign competition play on a level field.
Major U.S. businesses have joined leading environmentalists in support of this solution, known as “carbon dividends.” Promoted by the Climate Leadership Council, this policy also aligns closely with the principles recently endorsed by the Business Roundtable, representing the CEOs of 200 of America’s largest employers.
The embrace of carbon pricing by America’s business leaders demonstrates that companies want to hasten the transition to clean energy. But they need regulatory predictability and market certainty in order to innovate and make clean energy investments with confidence.
The current jumble of ever-shifting carbon regulations at all levels of government fuels uncertainty, slows investment decisions and ties businesses’ hands. This approach, which is also marred by the impermanence of federal climate rules and a sluggish rulemaking process, is no match for the scale and speed of the climate challenge.
By contrast, a simple and transparent nationwide price on carbon would — from day one — accelerate a future of net zero emissions. Carbon pricing provides more certainty and works much faster than either a regulatory or subsidy approach. And since it frees all carbon-saving technologies to compete toward the same goal, a carbon price ferrets out only the most economic solutions. This is key, as keeping energy affordable is necessary for maintaining broad public support for the energy transition.
Amid a pandemic downturn, the carbon dividends solution also offers striking benefits for American workers and the economy. If a gradually rising and economy-wide carbon fee starting at $43 per ton of carbon emissions were enacted next year, as the carbon dividends plan calls for, $1.4 trillion in new capital investment would be unlocked by 2035, a recent study by the research firm Thunder Said Energy found. This investment surge would drive the creation of 1.6 million new jobs while slashing U.S. emissions by more than half over that same period.
Rising carbon prices would also help America seize back control of its manufacturing and energy supply chains by prompting production based overseas to return to the U.S., closer to the products’ point of use, according to the study. And with more efficient technologies on hand, domestic manufacturers would double their efficiency gains, making them even more competitive in global markets.
Finally, a carbon fee and border carbon adjustment could be done unilaterally, without drawn-out international negotiations. Faced with this system, other countries would have little choice but to follow suit or lose a share of the U.S. market. And as more countries follow America’s lead, even rival economies, like China, would come under pressure to adjust their policies. In short, it would be an effective counter to China’s strategy of dominating world manufacturing while remaining the world’s biggest polluter.
With this approach, America can achieve in one sweep what decades of climate talks have never accomplished. On the other hand, if America fails to act, it must consider the real risk that other major economies will move first to leverage rules to their advantage.
Whether the next president is motivated by domestic economic progress or global climate action, they would do well to recognize that America already has a carbon advantage that can be leveraged to achieve both.
Curt Morgan is the president and CEO of Vistra Corp., the largest competitive power generator in the U.S. and a founding member of the Climate Leadership Council. Greg Bertelsen is CEO of the Climate Leadership Council.