Controversy erupted earlier this month when the European Union proposed carbon tariffs that would slap taxes on imports from countries that fail to take adequate action to address climate change.
In a new interview, Pavan Sukhdev — the president of WWF International, one of the world's leading environmental advocacy groups — said he backs such proposals, praising taxation as a key policy tool that can push industry toward environmentally friendly practices.
"I think it's not a bad thing," says Sukhdev, a former managing director at Deutsche Bank (DB).
"We know that there is a huge economic cost to greenhouse gas emissions, which comes home at some point in time, not immediately; but it could come later, a year later, a decade later, but these are the externalities," he says.
"So I think we need to recognize that climate change is a result of unmanaged externalities," he adds.
The EU carbon tariff proposal, detailed in a 291-page document, would not go into effect until 2026. The measure seeks in part to protect most European companies that must currently pay a charge for the carbon they emit. Without a tax imposed on foreign producers, they could undercut European competitors that face such carbon penalties, proponents argue.
"Carbon markets and carbon taxes are two sides of the same coin in the sense that these are alternative ways of ensuring that polluters pay and carbon is a form of pollution," Sukhdev says.
China assailed the proposed carbon tariffs as a violation of trade principles adopted by the World Trade Organization, and warned that the measure would hurt economic growth across the globe, Reuters reported.
The EU proposal comes as Democrats in Washington D.C. move to pass a $3.5 trillion infrastructure package that includes a slew of provisions aimed at tackling climate change, including tax incentives for electric cars and a clean energy standard.
A similar carbon tariff plan proposed by Senate Democrats, which they say will raise $16 billion in annual revenue, is expected to be included in the infrastructure package, The New York Times reported.
Speaking to Yahoo Finance, Sukhdev said the policy goal of addressing climate change can be attained with carbon markets that put a price on emissions and carbon taxes that put a levy on them. But the latter is more efficient, he added.
"We need to do what we can to address it," he adds. "This is at the heart of it all. I believe the two ways of doing that is taxation or pricing, basically giving companies budgets so that they have to manage within those budgets."
"Then that leads those who don't meet the budgets to purchase carbon credits, and cover them through another cost," he says. "I actually believe taxation is more efficient."
Born in India and educated in Switzerland and England, Sukhdev worked as a banker for more than two decades before he turned to environmental advocacy. In 2017, he was named the president of WWF International, a top environmental organization with more than 6 million donors worldwide.
Sukhdev said governments should impose taxes on companies for their pollution, rather than for the goods that the companies produce.
"Frankly, look at what we are doing these days when we tax," he says. "Our tendency in governments nowadays is to tax the goods. They're not the bad."
"When we come to resource usage and resource emissions, basically, pollution and especially the use of the atmosphere, it's a limited space," he adds. "We should be taxing that resource use — the resource of the atmosphere — but we don't do resource taxation."
"Hardly anyone does it. We are always taxing the goods and not enough taxing the bads," he adds. "So I believe this doesn't make sense. We should do it the other way around."