Agriculture : a perfect case study
for a debate over a border carbon
tax
8 March 2017
The Salon International de l’Agriculture (agricultural trade show in
Paris) should have been an opportunity to examine a subject that
unfortunately does not receive enough attention. Our agricultural
industry is heavily oil-dependent, both directly to operate farm
machinery and indirectly to produce inputs and other fertilisers that
the industry needs to function. This intensive agricultural system
results in a paradoxical situation.
Thanks to taxpayer-funded export subsidies, we sell off excess production that contributes to the
destruction of subsistence agriculture in emerging countries. At the same time, this highly intensive
agricultural model is increasingly contested by people worried about health impacts from the use of all
these products. This challenge to the status quo explains the growing interest in permaculture, organic
farming, short circuit agriculture, etc.
In that respect, we should look into the benefits of implementing a border carbon tax commensurate
with the carbon intensity of imported products and means of transportation used to bring them to our
markets. Do consumers in developed countries pause to think about the carbon emissions associated
with the green beans they eat in the middle of winter, the ones flown in on a refrigerated cargo plane?
It was not that long ago that a leading French politician wrote a book with the title “Je ne mangerai plus
de cerises en hiver” (I will no longer eat cherries in winter). Since then, the issue has faded from the
political debate. That is most unfortunate now on the eve of very important elections in France and for
Europe as a whole.
Europe has been trying to put together an energy policy for years. It has made some progress but still
has a long way to go in order to reduce its energy dependency and contribute fully to the fight against
climate change. The Emissions Trading System (EU ETS) covers all of the countries of the European
Union plus Iceland, Liechtenstein and Norway. It involves 11,000 energy-intensive facilities and
airlines (for intra-European flights), i.e. 45% of the greenhouse gas emissions. This system never
really functioned properly. Most specialists doubt that its upcoming reform will go far enough to
overcome its major defect, namely that it is too complicated and not comprehensive. To cite The
Economist, the ETS is a “perennial disappointment” (25 February 2017 issue of The Economist: “A
world turned upside down”).
Instead of focusing on the new U.S. president’s latest statements and decisions in this area, we might
do well to take an objective look at what leading Republican Party figures proposed in a document that
took the form of a policy statement on “the conservative case for carbon dividends”. The authors of
this document all previously exercised high-level governmental functions, among them James Baker
(Secretary of State), Henry M. Paulson (Treasury Secretary) and George P. Shultz (Secretary of
State).
These proposals are based on four pillars, the first three of which could garner relatively widespread
support.
The first involves the introduction of a tax on emissions in proportion to them. This tax would increase
gradually over time and would be levied at the point of entry into the economy. It offers several
advantages:
 Investors know that a cap is set and that the tax (initially set at $40 per tonne) will increase
steadily
 The tax collection mechanism is already in place and can be administered relatively efficiently
 The price signal changes immediately and continuously, such that all economic agents are
encouraged to reduce their most carbon-intensive energy consumption effective immediately
 The tax generates major revenues that are immediately available to pay households in the
form of a carbon dividend
The second pillar is essential to make the measure politically acceptable. The carbon tax must be
neutral. In other words, all of the revenues generated by the emissions tax must be returned in the
form of a carbon dividend (that is what British Columbia does under Parliamentary supervision). Under
the plan, the dividend could be paid out either directly by cheque or indirectly through credits to a
retirement savings account. The plan’s designers estimate that a family of four should qualify to
receive around $2,000 per year. This carbon dividend would increase over time, thereby strengthening
popular support for the system.
The third pillar addresses the issue of reducing the volume of goods being transported around the
globe. Many products are imported, which helps to destroy jobs for no good reason other than to
exploit the weakness of emerging countries, whose eagerness to promote development makes them
willing to accept our emissions. The introduction of a border carbon tax would help to reduce this trade
and encourage emerging countries to adopt new clean technologies that are more conducive to their
long-term development instead of importing carbon-intensive models that we no longer want. The
absurdity of current optimisation strategies is also worth noting. What is the point of reducing
emissions in developed countries if the result is to transfer them to emerging countries? Greenhouse
gases don’t stop at the border. The introduction of a border carbon tax would simplify matters by
leaving a clear choice:
 Either the exporting country has adopted a carbon tax system (it will have an incentive to do
so in order to prevent any tax receipts levied on emissions from benefiting the importing
country), in which case there is no reason to tax the products
 Or the exporting country has not adopted a carbon tax system, and in that case it makes
sense to tax said products.
The fourth pillar involves rolling back regulatory constraints, which, according to the authors, would
become less necessary once a carbon tax is implemented. This issue is of course inspired by the
political situation in the United States, where the new administration would like to roll back many of the
regulations imposed by previous Democratic party administrations. The situation in Europe is different,
of course, and certain scandals serve as a reminder that, at least in some sectors, we might need
more or better-conceived regulations. One need only cite the recent case involving automobile
emissions tests.
Naturally, some will object that introducing such a carbon tax at the European level is a pipe dream,
since it would require an unattainable political agreement. Without denying the scale of the challenge,
we might nevertheless point out that only recently we were told that:
 The ECB would never purchase sovereign debt securities
 A quantitative easing policy was just inconceivable, and lastly
 That a euro zone member country would never ever default on its debt ….
We can therefore remain optimistic by recognising that in the light of the urgency of the situation, we
must (and we have shown that we can) cast off old dogmas and impose our political will. Why should
that not be possible if we are to overcome the challenge of the energy transition?
Philippe Desfossés
Directeur de l'ERAFP