As US President Donald Trump imposes tariffs on Europe and China, and potentially South Korea and Japan later, how might they respond?
Answer: carbon tariffs on US Liquid Natural Gas (LNG) exports.
Applying such cabron tariffs would represent the height of sensible economic orthodoxy. Carbon import tariffs will generate funds in gas consuming countries to invest in decarbonizing their economies.
That will allow the carbon tariff money to stay at home and fund domestic economic growth through substituting local energy production in falling price wind and solar energy (plus battery storage) instead of leaching money offshore for imported natural gas.
Given the above, the impact of carbon tariffs would be a single, highly-manageable energy ‘price shock’ in consuming countries that’s long overdue anyway.
This is inevitability anyway. Sometime between the late 2020s and 2030s solar and wind will conclusively become cheaper than natural gas delivered to market as LNG in priced, carbon-adjusted terms.
Preparing for this future by investing in it now will make their economies more resilient and competitive during the 2020s. Relying on fossil fuels, by contrast, will lower their competitivess by driving up their domestic economic production costs through being chain-ganged to natural gas imports when renewables are cheaper.
As natural gas consuming countries, Europe, Japan, South Korea and China have little to lose from taxing carbon.The reason is that they don’t have domestic national natural gas champions to protect. Indeed, the opposite is true: they have much to gain from ridding themselves of carbon dependency.
Buying US natural gas leaches money offshore that could be used to create domestic jobs and build up renewable energy industries.
In Europe, South Korea, Japan and China, that would be wind. All have this resources in abundance. Complementary investment could be made in storage and management of intermittency, now available through batteries from Telsa (to cite one) and smaller stocks of natural gas that would dwindle over time.
What this means is the the US export machine of dirty Liquid Natural Gas is highly vulnerable to being displaced by alternatives. All a US initiated trade war in which trade partners reciprocate through carbon taxing LNG imports does is speed the process.
The US ends up the ultimate loser. If the US returns to rational leadership in 2020, it’s likely a new president will revisit the issue of proper carbon pricing to restore fiscal sanity. As a result, a carbon pricing regime is inevitable on fiscal grounds.