Carbon market or carbon tax? – Give Washington a trade war carrot and stick

The world can reign in Trump’s America for a new security…

by Felix von Geyer

The world has been waiting since 1997 for Washington to take meaningful and effective action on climate change.

Between the tweets, statements, retractions, and double bluff surrounding double positives, discerning coherent straight lines through the scatter diagram of Trump’s bluff and vitriol political style is akin to aluminium chaff thrashed out by naval warcraft seeking to divert the honing device of enemy missiles, real or imaginery. In the wake of Manafort and Cohen, one can expect only more of the same.

More white hairs pervade Trump’s Administration than grey cells, their collective political imagination honed in a bygone time hazed with political nostalgia. As Trump’s style embraces pugilistic revisionism, so it threatens to knock the post-second world war era of international co-operation whose spirit embedded US interests and values within multi-lateral regimes that provided America permanent pole position on the world’s starting grid of international political economic order.

Now anxious the supposed Pacific Rise of China will lose America the race to win the Grand Prix of the international political and economic order makes Trump further rescind on the post-Cold War new security agenda the world urgently needs but the United States still fails to lead.

Security stopped being a nuclear military security; a deeper security agenda in the 1990s embraced environmental, political, economic and even human security once Moscow’s bankruptcy through US-inspired low oil prices ended the Cold War.

If Europe ever expected the US to take an economic hit for the sake of the environment however, then the EU had another thing coming, a former career staff US climate change policy framer told me somewhere in the wake of the economic crisis.

Ironically, a decade ago, projected climate change costs to the economy were estimated at 1.8% of US GDP by 2100. Last year, America lost 1.66% of its GDP to climate change.

Yes, eighty years early, the economic hit from the environment came ahead of schedule but Trump’s response instead liberates US coal and automotive industries from any responsibility in redressing the global issue of climate change, the issue that terrorizes humankind beyond all borders.

The reality check is that any responsibility for saving the world now lays with the rest of the world. The US government – namely Republican politicians – long ago abdicated any federal responsibility on addressing climate security. For humanity to survive, the world must save America from itself and force the US towards a new security.

In a world where power is sometimes defined as A making B do something B ordinarily would not do, that would require a big carrot and an even bigger stick.

Encouraging the United States requires a carrot. So, the world should invite Washington to roll-out a global carbon market and suggest it be traded in US dollars as with every other major commodity.

Moreover, money through a certain percentage of all trade deals, akin to a Tobin tax but only on traded carbon credits, could furnish the coffers of the United Nations climate change mitigation and adaptation funds which Hillary Clinton said would receive US$100 billion of funding per year from 2020 onward at the 2009 Copenhagen climate change conference.

Yes, a global carbon market traded in US dollars would benefit the US economy, particularly the US Treasury and, the tighter the cap, the higher the price and the greater the role and strength of the US dollar. Taken a step further, a cryptocurrency hedged against the price of carbon could also be leveraged. The US dollar could see its history since 1945 shift perspective from gold to petrocurrency, now to carbon and more.

So, what if Washington fails to jump on such a generous opportunity? Simply, if the rest of the world fails to make Washington eat a fat supply of carrots for the benefit of everybody, they must transcend Trump`s bullying style.

Quite simply, impose a straightforward carbon tax against the US in place of retaliatory tariffs. Surely, the world over would applaud and support this necessary move?

Where the Trump Administration is hitting America’s traditional allies with sticks in the form of tariffs over steel and aluminium requires Canada, the EU and China to respond:- not just with a stick, but a moral staff. A new security agenda requires transcending old style politics.

Unlike Trump`s tariffs over steel and aluminium and retaliatory measures by Canada, EU and China that all likely flout World Trade Organisation rules, carbon taxes in the shape of border adjusted tariffs would be legal under WTO rules. The WTO said as much almost a decade ago in its joint WTO/United Nations Environment Program Trade and Climate Change report produced in the run up to the 2009 Copenhagen climate change conference.

Ironically, in 2009, carbon taxes or border adjusted tariffs were intended for use against developing countries like China and India to force them to address their future emissions trajectory set to outstrip current US emissions, or at least plug the so-called carbon leakage gap should countries like the US and Canada face the economic consequences of reducing their emissions while developing countries did not.

US states who have tried to lead on emissions reductions such as California’s Western Climate Initiative and the North-Eastern states’ Regional Greenhouse Gas Initiative, would not be able to receive exemption as the WTO only recognizes nation-states as members or entities. Therefore, a blanket carbon tax would on all US exports would be required.

Again, where the United Nations faces shortfalls in funding its Green Fund to help countries adapt to climate change under the Paris Agreement, much of the revenue from taxing US exports could be diverted accordingly.

Whether Canada as it is forced by Trump to renegotiate NAFTA can co-ordinate this policy with the EU with whom it has a recpricoal Comprehensive Economic Trade Agreement and both EU and Canada share China as an important trade partner, they will need to be in consort to achieve a new security. Bringing the UK on-board who likely aim for an economic trade agreement with Washington in the event of a Brexit Britain will also be critical.

But hopefully the carrot of rolling-out a global carbon market traded in US dollars will help the Trump Administration – and Washington – refix its vision of a security agenda and transcend its current myopic view of US interests and global security.





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