Molecules of inefficiency: How tariffs impact carbon intensities, carbon dioxide emissions, and the environment

Abstract

The 45th presidential administration declared natural gas to be “molecules of freedom”, a perfunctory used for political gain. Additionally, this administration has also levied tariffs as a political tool designed to reduce trade deficits rather than promote sustainability. In this paper, we study the impact of tariffs on domestic carbon intensities and carbon dioxide emissions. We find that tariffs increase carbon intensities and do not have an effect on carbon dioxide emissions. Since tariffs also reduce output, we conclude that by implementing tariffs the second best problem is invoked and overall market inefficiency increases. Additionally, since carbon intensities rise and overall carbon dioxide emissions do not decline, regional concerns over environmental quality and health should be raised. The paper concludes with a discussion of how these results impact policy decisions pertaining to instruments for promoting sustainability.