The Economist has an interesting "Economics focus" piece on the use of carbon tariffs against countries that do not take measures to limit their emissions. The piece describes the issue as follows:
... how can policy ensure that legal limits on emissions do not put local firms at a disadvantage to their foreign competitors? After all, if the cost of compliance puts factories in countries with strict rules out of business, while those in grubbier places flourish, a regulation is worse than useless. The planet's emissions stay the same, or rise, while the country doing its bit for the environment loses investment and jobs.
That's not a bad explanation of the issue, although it may be that domestic companies do not necessarily go out of business. Rather, as the opening sentence puts it, they are merely at a "disadvantage." So, for example, they may just lose market share, not go out of business. Later, the article points to some studies that examine how much harm specific industries would suffer in the face of domestic action against carbon emissions without an import component, and then states:
... even the most vulnerable industries would not suffer the Armageddon that lobbying groups are predicting.
That is important, since it suggests that the politicians are over-reacting, and that their remedies may actually make matters worse.
To me, this seemed like a strange way to conclude. They recognize the problem, they quantify it by reference to the studies, but then they only say that the problem has been exaggerated. They never offer a view of what to do about a problem they seem to think is a real one (even it has been exaggerated by some). They seem skeptical of carbon tariffs, for reasons I can understand. But what do they think should be done with regard to countries that do not take action on their emissions? Nothing? I have a hard time believing it is nothing, but they don't really offer any view.
