The way I see it, the major barrier to countries implementing carbon taxes is the fear their economic competitors won’t do the same, therefore hindering their economic growth needlessly. A valid concern.
Why don’t some nations build an ‘opt in’ style Free Trade Agreement that allows any country to join as long as they prove they have implemented and enforced a carbon tax. Those countries then have high financial incentives to only trade within the ‘carbon tax block’ and any country outside is at a serious trade disadvantage.
I’ve (quickly) looked and have not found anything like this proposed (which is frankly crazy).
Would you support your country jumping into this FTA?
What are the unforeseen downsides or objections to a plan like this?
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.
How so?
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.