Tariff could supplement U.S. carbon strategy

Debate over cap-and-trade or tax on emissions is meaningless without participation by developing countries, industry leaders say.

Imposing a carbon tariff on countries such as India and China is a likely facet of any emissions reduction strategy in the U.S., according to the former senior tax counsel of the House Ways and Means Committee.

Both U.S. presidential candidates favor a carbon cap-and-trade system to lower the country’s emissions. But John Gimigliano, now a partner of the energy and sustainability practice at KPMG, said that without similar restrictions across the globe, such policies could do more to hurt the country’s economy than slow global warming.

“You’re going to see a call for a carbon tariff,” Gimigliano said today. “We are going to hear there should be tariff on countries that don’t have carbon reduction schemes, otherwise you’re going to only draw manufacturing out of the U.S.”

A carbon tariff on energy-intensive imports starting in 2020 was part of the U.S. Senate’s failed climate bill in June. In January, the European Commission debated a carbon tariff but ultimately decided to shelve the idea because it could be hard to implement and lead to trade disputes.

In recent weeks, the threat of carbon tariffs has fueled political debate in Canada, with Liberal leader Stephane Dion saying Canada could face carbon tariffs because of its weak climate change policies.

Current proposals for a cap-and-trade or tax system don’t provide a third-world solution to carbon reductions, said Paul Deninger, vice chairman of investment bank Jeffries & Co. Both methods would raise the cost of energy, which could prevent their participation, he said today at the AlwaysOn Going Green conference in Sausalito, Calif.

A successful worldwide cap-and-trade system would solve that problem, said Josh Margolis, CEO of San Francisco-based Cantor CO2e, a financial services provider for environmental and energy markets. Cap-and-trade market would allow U.S. investors to pay companies in India to produce energy through renewable methods such as biomass. Those investors would then receive credits to sell, he said.

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