With which nations? A Free Trade Agreement isn't something universally good.
this post was submitted on 18 Sep 2023
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You wouldn't get to pick 'which nations'. What I'm describing would be a blanket statement: If you implement a carbon tax you can sign into this Free Trade Agreement club. Any nation in that club automatically has the same FTA with every other country.
"A Free Trade Agreement isn't something universally good." - Totally agree, but I think we can also agree that it would create an incentive for countries within the agreement to trade more with each other than with outsiders. It would also provide an incentive for the outside countries to join the club (specifically after it has reached some critical mass).
Industries within countries could definitely be negatively effected because of the FTA. I get that. All industry will be negatively effected if climate change isn't curbed though. This seems like a way to make a tangible policy today that builds economic incentives for a carbon free future. It does not require full world 'sign off' before you start. It can start with just two countries drafting this open-invite FTA and allow any other country into the club once they've proven they have a carbon tax.
Would need a few more stipulations than just a carbon tax.
Labor rights would be important too. One country that uses slave labor to build stuff, and dumps toxic waste into the ocean, but just tacks on a few $ in carbon tax for their big carbon belching systems still wouldn't be good for anyone.
Probably would be ok with a general human and nature rights treaty, where there is free trade as long as the overall impact of the economy in all aspects is at least neutral.
overall effect at least neutral
You realize this is a very difficult thing to determine right?
Of course it is, but if the goal is fixing the planet, you can't just say "carbon tax" and be done with it, because there's many other things that are screwing up the planet, and a carbon tax itself just raises the cost of polluting, so if the rest of the manufacturing chain is cheap enough due to everything else having no protection, than a carbon tax isn't a solution at all.
Free trade with a country that has limited environmental protections just off-shores the environmental impact to another part of the world, which invariably screws up the entire planet. Any sort of unfettered free trade must have very strong societal and environmental guarantees.
Our generation can't fix all of the problems with the world, as much as many of us would like to. What we can try to do is give future generations the opportunity to fix what we can't - but that requires us taking action on the climate today at the cost of our other ambitions.
I agree. The goal is fixing the planet. There are loads of problems that need fixing. Unfortunately, we need to start considering the cost of inaction. If adding some societal guarantee reduces participation in a carbon tax that is a cost the whole world has to pay in the future. If too many restrictions are added there may be no change from the status quo.
I am frustrated by the myriad of lofty goals that go nowhere. We needed action on those lofty goals yesterday. We are more desperate for it today and have to pay for that with compromises.
IMO climate is not going to be solved without a world government that has jurisdiction over all of Earth.
That is a political nightmare for other reasons, but it’s necessary to solve the incentive problems around this.
Without authoritarian enforcement, it’s just not going to happen because of the whole tragedy of the commons thing.
I’m not saying that should happen. I think that when considering a single planetary government with today’s climate, versus a multipolar planetary political system with the climate predicted by the IPCC if we don’t stop climate change, the single world government is worse for humanity.
Unless there are parts of human civilization that aren’t on Earth. A single government with jurisdiction over all humanity is a serious problem. By the time we have multiple worlds, single world governments won’t be as much of a nightmare.
Then we can solve climate change. But MAD will be disrupted. Which is its own problem.
Well the idea of a carbon tax, in the context of effects which are difficult to determine, is that it is simple and specifically does not attempt to determine those effects. It relies on the assumption that less carbon release is better, and after that, all the determinations about what specifically can be changed to reduce carbon usage is handled by the distributed decision mechanism of the market.
The difficulty in evaluating these effects isn’t just an obstacle to be overcome, but a design reality that determines the shape of a solution.
Specifically, it means the potential solution should not include that evaluation happening inside the government. That evaluation should be done by the more inclusive and thorough mechanisms of market interaction, rather than the shallow and cursory mechanisms of committee meetings.
I guess this might be an incentive for some developing nations.
But FTA agreements also come with a lot of strings attachted.
For example, I would not want an FTA agreement with the US, regardless. They usually require the partner nations to enforce US copyright law. Also we already have higher consumer product standards and I doubt the US will raise theirs to comply.
It might be a big tripping hazard to go full "free trade agreement" just to get a carbon tax. The better approach is probably going to be some sort of mutual taxation/tariff/duty pledge. Something where all the countries that opt in would levy a duty of some sort on all goods that involve carbon emissions in their lifecycle outside the transportation of said goods (this is a trade agreement after all), and waive that duty on all member nations' exports.
When people hear "free trade" they think of a system that waives all import duties, which may or may not be what is desired here. I can think of some bad actors passing a "carbon tax" just to get all the other duties on their goods dropped.
The alternative of course would be an actual free trade agreement but with a lot more qualifications than just "carbon tax." Like union support, a living minimum wage, free education through age 18 (for example), environmental protections, reasonable intellectual property protections, no wars of aggression, etc etc., PLUS a carbon tax.
When people hear “free trade” they think of a system that waives all import duties, which may or may not be what is desired here. I can think of some bad actors passing a “carbon tax” just to get all the other duties on their goods dropped.
Honestly, this is exactly what I was thinking when I formulated this question. While I agree with your comprehensive list, we may not have time for that. Even a 10 or 20 year deal of a "carbon tax free trade agreement" may be all we need to course correct. If it is effective (at curbing carbon emission and as a political tool) a new FTA with the qualifications you listed could be crafted. The more qualifications, the slower nations would be to adapt/enroll and I'd be wary of adding too many if the goal is fast action now.
Bad actors' intent matters little, as long as their actions align with world goals.
This gives advantage for countries that don’t join such agreement, e.g. China.
I don't think it would, but certainly worth discussing. Countries in the FTA would have an incentive to put tariffs on products produced outside the FTA zone to bring them inline with 'carbon taxed' prices. These tariffs would be legal to impose until the country joins the carbon tax FTA. Countries that don't join the FTA would (or at least could) have trouble exporting products into the FTA zone which would give them incentive to join or risk economic harm.
So, China might make equivalent of FTA, but without carbon taxes. And saying that "our FTA" would tax more if the product originated outside of "our FTA" simply means tariff wars, since the countries outside of our FTA would tax our goods more.
On top of this, countries have tariffs for reasons, including protecting internal production and revenue collection. Getting into "our FTA" means that they lose those benefits.
TLDR: It is not that simple, and not clear cut that it will work overall.
At some point the benefits of being in it would exceed the the gain from carbon externalities, but I don't know what that point would be exactly.
How so?
What wound be the benefits of belonging to this free trade agreement?
Countries would still have economic competition from countries outside the free trade agreement, unless part of the agreement is actively restricting trade from countries not in the agreement.
Countries within the FTA obviously will not want their carbon taxed products competing with 'polluted products'. This gives countries in the FTA an incentive to place tariffs on goods produced outside the FTA. This would make it difficult or expensive to export into the FTA if a country isn't a member. The benefits are the access to the FTA markets (more or less).
So then your problem is that access to the FTA markets comes with barriers to the non-FTA markets.
Then you’ve got a network effect problem. Let’s say one country declares it’s the new FTA starter. What does the second country’s situation look like then?
If the second country joins the FTA, then its effects will be:
- Trade access to the small FTA market
- Trade barriers to the non-FTA market
What you did with the opt-in idea is found a solution for some of the incentive barriers to this agreement. Sort of an incremental growth approach which is more likely to succeed than an all-or-nothing approach.
But then the rule that it involves tarrifs against non-FTA countries means there is a downside to it. Suddenly the utility graph has a big zone that’s below zero.
This is a really hard problem (one that is historically solved by armies forcibly consolidating territory into unified political units), and I hope you keep working on it.
But then the rule that it involves tarrifs against non-FTA countries means there is a downside to it. Suddenly the utility graph has a big zone that’s below zero.
In what I was suggesting, there are no required tarrifs between the non-FTA and FTA countries. The only requirement would be that within the FTA there are no tariffs. Presumably the trade laws between a non-FTA and FTA country would remain the same, and might have a slight increase to compensate for the internal carbon tax.
I'm sure this small clarification doesn't actually make much of a difference on your larger point. I'm clearly not a trained economist. I appreciate your response, but there are a few things over my head. Do you have good suggested reading/videos for "Network Effect Problems" or "Utility Graphs"? Or should I just search around?
No, for very very obvious reasons.
I love this idea.
I would definitely support it.
In theory yes, but aid he suspicious that it was rigged to benefit the rich.
I like the principle, and we already have the carbon tax, but even I think free trade can be a double edged sword. What if North Korea (or substitute Afghanistan, if you like NK) joins? Are we just going to start sending them goodies?
If you "like" North Korea you should have your carbon taxed.
Just stay away from Hexbear and you'll not have to worry about those types.
That would depend on where the money from that tax goes, how it's enforced, and how that organization is set up to reduce corruption.
I'm all for it on paper, but I'm not expecting something like this to actually happen and work in the real world.
All valid points. Compliance would have to be a staple, which makes enforcement and oversight critical.
Where would you want the tax revenue to go in your country?
Personally, I'd be happy with a blanket tax return. Take the money generated by last year's carbon tax, divide it by the number of tax payers, and call it a day. Since wealthy people typically have a higher carbon impact (pay more into the tax), this would average out to a small redistribution of wealth towards the less fortunate.
This gives advantage for countries that don’t join such agreement, e.g. China.