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1 Alex Muresianu & Sean Bray, Carbon Taxes, Trade, and American Competitiveness 1 (2022)

handle is hein.taxfoundation/cntstde0001 and id is 1 raw text is: Carbon Taxes, Trade, and American Competitiveness FISCAL Alex Muresianu PolicyAnalyst FACT Sean Bray EU Policy Analyst No. 803 Nov. 2022 Key Findings • Carbon leakage occurs when a climate policy in one jurisdiction leads to emissions-producing activity simply shifting to a different jurisdiction. • Leakage raises both environmental concerns-as it undermines emissions reduction efforts-and economic concerns. • In the aggregate, leakage is relatively small, but it could have an outsized impact on specific emissions-intensive, trade-exposed (EITE) industries. • Using a border adjustment to make a carbon tax based on consumption, rather than production, can help address this problem. • However, measuring the carbon content of imported goods is challenging. This underscores the need to pair carbon taxes with strong domestic tax reforms. • Pro-growth policies like expensing for R&D investment and permanence for 100 percent bonus depreciation would at least mitigate a carbon tax's impact on manufacturing and other critical industries. The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels. We are a 501(c)(3) nonprofit organization. ©2022 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org