Saturday, December 5, 2009

Carbon Tariffs Update: The US Senate v. The Developing World

Developments over the last few days highlight what appears to be an expanding rift between the United States and the rest of the world (minus France) on the issue of "carbon tariffs." To keep everyone up to speed, carbon tariffs (aka "border measures" or "border adjustments" or "offset measures" or... you get the idea) are measures intended to offset the competitive disadvantages that climate change mitigation policies have on domestic manufacturers by imposing at the border a "charge" (or "tax" or "tariff" or "adjustment" or...) on imports of like products from countries that have chosen not to burden their manufacturers with such regulations.

As I've noted repeatedly, much of the developed and developing world has publicly opposed the unilateral use of carbon tariffs due to fears that such measures are utterly unmanageable, could easily devolve into "green protectionism" (i.e., a "green" excuse to keep imports out, regardless of the actual climate change facts), and/or spark a global trade war. And lots of studies support their views.  The Chinese have been one of the most vocal opponents and, as Reuters reports, just yesterday reiterated their stance against carbon tariffs and (again) issued a harsh warning to other nations contemplating their use:
China's official news agency has denounced proposals for "carbon tariffs" on goods from big greenhouse gas emitting countries, saying on Friday that the idea could trigger trade battles with poor countries....

China, the world's biggest emitter of greenhouse gases and an exporting giant, has denounced the idea before, and its Xinhua news agency pressed that opposition in a commentary issued before key climate change negotiations open in Copenhagen on Monday.

"The carbon tariffs proposed by some developed countries are quite likely to trigger a trade war and spark boycotts from developing countries," said the Xinhua commentary, adding that rich nations had failed to act on their own vows to cut emissions and give more help to poor countries to fight global warming.

"Some developed countries have made a wrong decision. They are practicing trade protectionism under a disguised pretext," said Pan Jiahua, a climate policy expert who has advised the Chinese government, according to the commentary....

The Xinhua commentary underscored China's fears that the United States, European Union and other rich economies could slow the flow of goods from it and other developing countries in the name of environmental protection....

The Xinhua commentary said such measures would violate World Trade Organization rules. Experts have said some border adjustment measures would be permissible under WTO rules.

"The true motive of developed countries' carbon tariffs proposal is to protect domestic industries, which have suffered during the global financial crisis," said Xinhua.

As the article mentions, China's stance is nothing new, and the timing of this latest warning is obviously intended to remove any doubt about the country's position on the controversial issue during next week's Copenhagen talks. And you can't really blame the Chinese - whose products are routinely hit by supposedly "remedial" tariffs under US trade laws that can approach 100%(!) - for worrying that remedial carbon tariffs would be dictated by domestic politics and in no way reflect the actual "remedy" (a leveling of cost-competitiveness) intended by any US climate change law.  Other countries have similar fears, and rightly so: the lobbying in the US and EU has already begun, and we don't even have a law yet!

Speaking of other countries, we also saw this week that India has again rejected a hard cap on carbon emissions. This isn't actually "news," as it's been India's position all along.  But I wonder if it will end up being important in the context of carbon tariffs. For example, would anyone be surprised to see certain protectionist elements use India's and other developing countries' refusal to cap their emissions as the perfect excuse to demand carbon tariffs, regardless of the countries' other commitments? I sure wouldn't.

Unfortunately, it seems that a growing bloc of the US Senate is unconcerned with what the "rest of the world" thinks. As BNA (subscription) reported yesterday:
Nine Senate Democrats from industrial and agricultural states wrote President Obama Dec. 3 in advance of his trip to the international climate negotiations in Copenhagen, calling for an agreement that uses “border adjustments” or tariffs to enforce emissions reductions.

In the letter, the senators also endorsed negotiating “effective bilateral and multilateral agreements” to reduce emissions in specific trade- and energy-intensive economic sectors.

These agreements should include border adjustments “on imports from nations that have not yet adopted sufficient emission control measures,” the letter said.

The lead author of the letter was Sen. Arlen Specter (D-Pa.). He was joined by Sens. Carl Levin (D-Mich.), Tim Johnson (D-S.D.), Debbie Stabenow (D-Mich.), Sherrod Brown (D-Ohio), Claire McCaskill (D-Mo.), Amy Klobuchar (D-Minn.), Kay Hagan (D-N.C.), and Mark Begich (D-Alaska).

The senators called climate change “a serious and growing threat to the United States and the world” but said “poorly designed climate policies could also jeopardize U.S. national interests by imposing burdens on U.S. consumers, companies and workers without solving the climate challenge.”

“The United States cannot stop climate change alone—success depends on marshaling an effective global response,” the letter said. “Engaging developing nations will be especially important as they represent half of global emissions today and are expected to account for nearly all of the growth in future emissions.”
The full letter is available (PDF) on Sen. Specter's website.  As you'll recall, ten protectionist Senators - Sherrod Brown, Debbie Stabenow, Russell Feingold, Carl Levin, Evan Bayh, Robert Casey, Robert Byrd, Arlen Specter, John D. Rockefeller, and Al Franken - sent a similar letter to the President in August, and there's a lot of overlap between the two letters' signatories.  Only Klobuchar, McCaskill, Hagan, Begich and Johnson are new, but that's unfortunately five more Democrats that have joined the growing list of carbon tariffs supporters in the Senate. (By my count, that makes 18 Dems and one GOPer (Lindsay Graham) who have publicly announced their support - see full list at bottom.)

On the bright side, three important facts argue against utter despondency.  First, Cap-and-Trade is dead in the Senate for this year, and considering Climategate, the 2010 midterm elections and the fragile state of the US economy, there's almost no chance that any climate bill becomes law before November 2010 (at the absolute earliest).  Second, the fact that Sherrod Brown and his merry band of anti-traders could only scrounge up nine Senators to sign a pre-Copenhagen letter is a somewhat heartening sign of Senate opposition or ambivalence re: carbon tariffs.  Third, a quick review of Cato's Free Trade Scorecard indicates that McCaskill, Klobuchar and Johnson have strong protectionist records, and Senate freshmen Hagan, Franken and Begich have been quickly earning their anti-trade wings since taking office in January. Thus, Senate support for carbon tariffs still remains mostly isolated to the hardcore (or aspiring) protectionists, with only three "trade moderates" - Baucus, Cardin and Kerry - publicly on board.

But still, this is an unwelcome trend. Given the partisan divide on the climate change issue, almost every Democrat vote will be needed if a bill is ever to make it out of the Senate. Thus, 18 Senate Democrats - almost 1/3 of their caucus - intensely supportive of carbon tariffs can almost certainly ensure that any Senate climate change legislation contains carbon tariff provisions - only a strict and public demand by the President could quash such an effort, and that seems rather unlikely.  So if climate change legislation ever does return to the top of the Senate's docket next year, it seems pretty likely that it will contain eco-protectionist provisions.  (Considering current pro-GOP trends for 2010, however, all bets are off in 2011.)

Fortunately, and as discussed above, renewed Senate consideration of Cap-and-Trade seems highly unlikely.  For now at least.

Now let's update the ol' carbon tariffs scorecard:

Pro carbon tariffs - Sen. Max Baucus (D-MT); Sen. Ben Cardin (D-MD), Sens. Lindsay Graham (R-SC) and John Kerry (D-MA); Sens. Amy Klobuchar (D-MN), Arlen Specter (D-PA), Carl Levin (D-MI), Claire McCaskill (D-MO), Debbie Stabenow (D-MI), Kay Hagan (D-NC), Mark Begich (D-AK), Sherrod Brown (D-OH), Tim Johnson (D-SD), Al Franken (D-MN), Evan Bayh (D-IN), John Rockefeller (D-WV), Robert Byrd (D-WV), Robert Casey (D-PA) and Russ Feingold (D-WI); the US House of Representatives (in Waxman-Markey), France, and Paul Krugman.

Voting present - the White House.

Anti carbon tariffs - the rest of the world.

Finally, the good folks at FreedomToTrade have circulated an online petition in opposition to carbon tariffs and other forms of eco-protectionism.  I've signed on to this worthwhile effort and ask that you do the same.  Go ahead, you know you want to.

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