THE BCA PLAN WOULD ALSO INCLUDE CORPORATE AND LOW-INCOME TAX CUTS.

production being replaced by imports from countries with lower environmental standards.

Quebec and California have for a few years been dabbling with a common production-based cap-and-trade scheme; Ontario is expected to join next year. But California has finally recognized the limits of the system and may soon opt out: the price of carbon remains too low to truly drive emission reductions and emitters may simply relocate operations to a neighbouring state to escape the constraints.

To address these problems, a new bill has been introduced in the state legislature that proposes that California adopt a BCA, a model which is apparently poised to gain traction in the coming years. The goal is to allow California to predictably raise the price of carbon, including carbon embedded in imports from outside

Rejecting such logic, two experts from the University of Oxford, Dieter Helm and Cameron Hepburn, immediately debunked the complexity complaint by arguing “that this is to confuse the perfect with the good ... In practice, there are only a small number of industries that account for most of Europe’s carbon imports. These can be taxed upstream based on the carbon content of the production process and fuel mix. Being approximately right — and generous to importers — is superior to being precisely wrong.”

In order to succeed, the carbon tax system of any country must dovetail with the carbon system of its trading partners. To do otherwise will create loopholes which will encourage circumvention. If America’s main trading partners, including Canada and the European Union, already had a BCA in place, the path to American adoption of a BCA would face fewer impediments. Likewise, having a BCA in the U.S. would facilitate the enactment of similar systems in Canada and Europe.

With the U.S. Administration having expressed interest in renegotiating its trade agreements, the U.S. could thus insist that all America’s trading partners, including China, implement a BCA modelled after the Climate Leadership Council’s recent proposition.

The Climate Leadership Council’s BCA, assuming a tax of US$40 per ton of carbon, also proposes to finance a generous U.S. corporate tax cut or provide American families with up to $2,000 in annual carbon dividends; as the carbon tax rate would increase, the progressive tax measure benefiting lower income families would grow over time.

Moreover, such a policy would also satisfy conservatives’ desire to reduce ill-conceived government interventions and burdensome regulations. Although minimal regulation would still be needed, the incentives provided by higher and rising carbon taxes should help firms and consumers behave consistently with regulators’ objective of reducing emissions.

Finally, there are concerns that the WTO would reject BCAs. However, as pointed out by Maria Panezi of the Center for International Governance Innovation, “there is no indication the WTO would block such measures if they were designed with the environment in mind rather than to protect domestic industries from foreign competition.” California seems to have reached a similar conclusion. Thus properly designed and marketed, BCAs might be just what is needed to efficiently tackle climate change.