Could Carbon Tariffs Scuttle a Copenhagen Agreement?

Well, probably not, but as Bloomberg reports, developed and developing countries are still at loggerheads over the controversial issue:

China is demanding that a global agreement to reduce greenhouse gases prohibit nations from imposing trade sanctions, further pitting the world’s No. 1 emitter against U.S. lawmakers.

The draft accord from a meeting in Copenhagen to forge a climate treaty bars rich nations from adopting trade actions tied to global warming. China said such language will avert “trade wars.” The U.S. Chamber of Commerce sides with China.

“We will always oppose any practice of establishing trade barriers under the guise of protecting the global environment,” Yu Qingtai, China’s climate change ambassador, said in an interview....

[T]rade is emerging as a central issue dividing developed and developing countries at the United Nations gathering in the Danish capital....

In Copenhagen, the latest version of a proposed treaty includes language banning developed countries from ‘‘resorting’’ to climate-related trade measures is printed in brackets, meaning it lacks consensus agreement and must be dealt with by higher-level negotiators from 193 countries....

Yu said China and other emerging economies simply want outlined in a new treaty what he says already exists in the 1992 UN Framework Convention on Climate Change, the basic climate agreement governing the current talks.

As I noted on Friday, the trade section (paragraph 6) of the first draft Copenhagen text was blank, so it appears that the climate negotiators have made a little progress by at least inserting something there.  However, the brackets make clear that no one has agreed to anything just yet.  (I can't find the latest draft online, can you?) And clearly, the issue of carbon tariffs (aka "border adjustment measures") and eco-protectionism more broadly continues to be a serious roadblock to completing a Copenhagen climate agreement by this Friday.

That said, the current conventional wisdom on this issue - pushed by Bloomberg, Reuters and others - requires two pretty significant clarifications:

First, developing countries like China and India are not the only ones opposing carbon tariffs.  As I've noted several times, many developed countries (e.g., Germany, Australia, New Zealand) oppose carbon tariffs and other forms of eco-protectionism.  So while China's clearly one of - if not the - loudest opponents, there are plenty of other countries, developing and developed alike, rooting for the inclusion of language in the Copenhagen agreement that would limit or ban the use of border measures.

Second, US resistance to the bracketed language on trade measures might not be due to US politicians' demands for carbon tariffs in House and Senate climate change legislation.  At least entirely.  Instead, the US position might be a basic negotiating ploy to get China and others to cave on other key Copenhagen issues like emissions caps and verification measures.  Indeed, here's a NYT report from yesterday hinting to just that:

A group of 10 Democratic senators wrote to Mr. Obama two weeks ago warning that the Senate would not ratify any treaty that did not protect American industry from foreign competitors who do not have to meet global warming emissions limits.

That threat could, paradoxically, help drive the Chinese to cement a deal here, an American official said. “Their No. 1 motivation is to avoid border tariffs,” the official said.

Considering that US officials themselves acknowledge the negotiating leverage that carbon tariffs provide them over China and other developing nations, the United States' current demands at Copenhagen might just be posturing, rather than blatant support for eco-protectionism (as could some Senators' recent statements demanding carbon tariffs).  Considering that so many other developed countries also oppose the controversial measures, the former scenario actually seems more plausible than the latter.

My guess is that it's a little of both, actually.  The politics at home are pretty daunting - I've tallied 19 Senators in support of carbon tariffs - so US negotiators have every reason to oppose language expressly banning them.  That said, the negotiators must know that many more countries oppose border measures than support them, and that it's an agreement-killer for almost all developing countries.  They also know, however, that carbon tariffs are great negotiating leverage, so it's win-win for them to hold out until the very last second and then relent only when the entire agreement hangs in the balance.  The smartest thing to do, it seems, would be for them to hold out and perhaps get a little more from China, India and others, but then cave at the last minute and show the angry folks back home (almost all of whom otherwise support climate change legislation) that they had only one choice: give in on carbon tariffs or get nothing at all.

(Obvious disclaimer: just because that seems to be the smartest play doesn't mean that's what's actually going down, of course!)

Regardless of US motivations and strategy, it's becoming increasingly clear that border measures are going to be a major sticking point at Copenhagen until the very last minutes of the negotiations.  Whether they end up scuttling a final agreement is far from clear, but it'll sure be fun to watch, now won't it?