Slapping a new carbon tax on imports from China might just be the only way to cut greenhouse gases in de`veloped countries, according to a report released today by economists at CIBC World Markets.

China is now the single largest carbon emitter country in the world, producing more than 21% of the world’s total, the report notes, adding that despite efforts in developed nations such as Canada to reduce the spewing of GHGs, carbon emissions in China are skyrocketing. Since 2000, total emissions have climbed by more than 6,000 million metric tonnes (mmt)—with 90% of that coming from China and other developing nations.

“As OECD countries begin to tax their own economies by charging growing fees on CO2 emissions, their tolerance of the carbon practices of its trading partners will diminish rapidly,” says Jeff Rubin, chief economist at CIBC World Markets.

According to the report, efforts to gradually reduce carbon emissions in the U.S. by just 10% through a cap and trade system will shave an estimated 0.6 percentage points off real GDP growth annually for the next five years and similar costs are expected for Canada and other OECD nations.

Rubin says that without collaboration with the developing world, decarbonization efforts will only add costs for consumers, make domestic industry less competitive and shift production to unregulated zones, which will ultimately increase emissions problems.

“The OECD’s only leverage is through trade access,” says Rubin. “The response is likely to involve a carbon tariff—an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries.”

Rapid economic growth, an absence of environmental regulations and the emissions intensity levels of the Chinese economy have all led to nearly 120% emissions growth in the last seven years, the CIBC report notes. The country’s average annual increase is equal to the total greenhouse gas emissions of Canada or the United Kingdom.

“Energy use in the manufacturing-intensive Chinese economy as a share of GDP is four times larger than in the largely services-based U.S. economy,” says Rubin. “It produces a third more CO(2) emissions per unit of energy than does the U.S. economy, and double that of Canada. Combine the energy intensity of the Chinese economy with the poor carbon efficiency of its energy use and you have a powerful cocktail for exploding emissions growth.”

The CIBC report calculates that a $45 per tonne tax on CO(2) emissions would raise roughly $55 billion a year from Chinese exports to the U.S. But Rubin also points out that consumers will have to bear the brunt of the burden through higher import prices. According to the economist, a $45 per tonne tariff would raise U.S. consumer price inflation by more than 0.6 percentage points.

“At some point, however, the inflationary impact might be mitigated as either domestic production replaces some Chinese imports or sourcing is shifted to a less egregious emitter than China,” says Rubin.

The report says that China and other countries in the developing world are “hugely disadvantaged” when it comes to how energy and carbon efficient they are. As a result, Rubin forecasts, China’s wage advantage would be lost for many energy-intensive industries who will then look to return home to North America.

Rubin expects Chinese exporters of chemical products, with their “astronomical energy intensity factor,” will be the first to see their businesses migrating back. Chemical exports from China to the U.S. are already slowing down, according to the report, with shipments in the past two years rising by only half the pace seen in the first half of the decade.

“Environmentalism will soon become a significant barrier to trade,” says Rubin. “A carbon tariff imposed by the U.S. on emissions embodied in Chinese exports would be large enough to start reversing current trade and offshoring patterns.”