Carbon Tariffs at the G20 Summit
By Tiyana-Marie Bassim | December 2, 2021
The annual G20 summit took place in Rome this year and was widely regarded as an event with boastful proposals and lacking in probable action. The conference, formally known as the Summit on Financial Markets and the World Economy, brings together the world’s major economic players that account for more than 80% of world GDP, 75% of global trade, and 60% of the world’s population to discuss international economic cooperation. Top officials from 19 countries (including President Joe Biden) and the European Union have gathered in Rome this year to discuss issues including climate change.
During the summit, the Biden administration revealed support for rolling back tariffs on European steel and aluminum. As a result, costs on goods like cars would be lower and could potentially catalyze the movement of supply chains. Regarding climate change, this tariff agreement will reduce carbon emissions by curbing imports of steel that produce high levels of carbon emissions. President Biden explained that this agreement would, “restrict access to our markets for dirty steel from countries like China and counter countries that dump steel in our markets.” American and Asian steel producers rely on different methods of converting iron into steel, with American steelmakers most likely to use recycled scrap metal. The results are that 50% to 100% more carbon dioxide is emitted in the production of imported steel than American steel. Using tariffs to cut carbon emissions is a new tactic, and this is the first trade agreement to incorporate this new strategy to combat climate change.
Tariffs tackling climate change could redesign industry. For instance, a state can impose a carbon tax on a company which in turn can raise production costs and prices. As a result, that company would become less competitive domestically. There is then the risk that these regulations could lead to buyers importing less expensive steel made with more carbon emissions. Simply, there is a chance that the environmental benefits that countries like the United States want to achieve through carbon tariffs could be undone with production shifting to countries with fewer environmental regulations. On top of that, domestic companies would then be at a disadvantage.
There is also the issue that we do not live in a theoretical economic world. For example, an industry trade group representing European aluminum producers states that China could avoid the carbon tariff by exporting to Europe from the 10% of aluminum that is produced with hydropower. The rest will continue to be generated using coal for domestic use. It is also essential to question what will this agreement look like after going through politicians and lawyers?
Edited by Zachary Elias