Wednesday, September 9, 2009

Carbon Tariffs Update: New Support For A Bad Policy?

The International Centre for Trade and Sustainable Development (ICTSD) reports today on some interesting news out of last month's high-level intergovernmental discussions on climate change in Bonn, Germany. From August 10th to 14th, government officials met to talk about key environmental issues in the run-up to December's negotiations in Copenhagen to forge a successor agreement to the Kyoto protocol. Overall, the multilateral talks were pretty typical - lots of talking, little clear agreement, and no concrete results.

However, there was one important development that warrants mention - an Indian proposal to agree that no developed country would unilaterally impose carbon tariffs or other "border adjustment measures" on imports from countries that don't have "sufficient" climate change measures. As ICTSD reports:
The discussions on the "economic and social consequences of response measures" to climate change saw heated debate on trade-related issues. The talks took a surprising turn when India proposed that the following language be inserted in the negotiating text:

Developed country Parties shall not resort to any form of unilateral measures including countervailing border measures, against goods and services imported from developing countries on grounds of protection and stabilisation of the climate. Such measures would violate the principles and provisions of the Convention, including, in particular, those related to the principle of common but differentiated responsibilities (Article 3, paragraph 1), to trade and climate change (Article 3, paragraph 5), and to the relationship between mitigation actions of developing countries and the provision of financial resources and technology by developed country Parties (Article 4, paragraphs 3 and 7).

The suggestion received support from dozens of developing countries but was opposed by the US, Japan, and the EU. Notably, the language referencing the UNFCCC agreement is clearly meant to cover Boarder Tax Adjustments - measures like the ‘carbon tariffs’ that are included the climate bill that is now working its way through the US Congress - even if such measures are WTO compatible.
As I've stated before, global opposition to carbon tariffs has grown in recent months to expand beyond the typical developing countries like China and India and include developed countries, such as Germany and Australia. The OECD Chief also recently spoke out against carbon tariffs, so the opposition of the US, EU and Japan to the Indian proposal at first blush appears to be a little surprising.

Well, it's not.

Developed country opposition to the Indian proposal does not mean that the countries necessarily support carbon tariffs. All it means is that they don't want their hands tied by the developing world in the multilateral negotiations. Developed countries want to be able to use the threat of carbon tariffs - or other unilateral measures - to get the developing world to commit to domestic climate change policies like carbon emissions caps. So committing to the Indian proposal would essentially ruin one of the developed countries' biggest and baddest negotiating tools. Hence, their unsurprising opposition.

That said, the Indian proposal is still important because it stresses just how much opposition there is in the developing world to carbon tariffs. "Dozens" of developing countries are very serious about this issue, and if the US Senate's climate change legislation mirrors the recently-passed House version ("Waxman-Markey") - as advocated by 10 Democratic Senators - the developing world is going to flip out. And the multilateral climate change negotiations in Copenhagen will collapse before they ever officially begin.

Something to think about when the Senate officially begins debating the climate change legislation. (Assuming, of course, that they stop pushing it off and finally do start debating it.)

So for now, we can't update the ol' carbon tariffs scorecard. It remains as follows:
Pro carbon tariffs - Ten protectionist Senators, the US House of Representatives (in Waxman-Markey), France, and Paul Krugman.

Anti carbon tariffs - the rest of the world.
But be forewarned, EU/Japan/US: I've got my eye on you.

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