Thursday, March 25, 2010

Carbon Tariffs Update: What Gaia Giveth, Gaia Taketh Away

After a long hiatus, carbon tariffs - you remember, those pesky unilateral border taxes on imports from countries that have "insufficient" climate change systems - are back in the news.  First up is the good news, and boy is it good: after originally being declared unconstitutional, the French Carbon Tax is raide morte.  Here's the FT with the big news:
The French government on Wednesday said it would abandon its plan to introduce a carbon tax on domestic energy and road fuels unless there was agreement for a European Union-wide levy.

The U-turn on the controversial environmental tax come two days after the governing UMP party of President Nicolas Sarkozy suffered a heavy defeat in regional elections. Senior UMP politicians have blamed the defeat in part on the proposed tax, which was due to come into effect on July.

François Fillon, prime minister, told a meeting of centre-right parliamentarians that France would not penalise its industry by introducing the tax unilaterally.

“All decisions taken on the issue of sustainable development must be analysed in the light of our competitiveness,” Mr Fillon told the deputies. “We want the decisions to be taken in common with other European countries otherwise we are going to see a growing shortfall in our competitiveness.”

The decision to ditch the tax divided the government. Chantal Jouanno, the junior minister for the environment, lashed out at the decision saying she “despaired of this retreat”.

Since an EU-wide carbon tax is unlikely to gain approval in months ahead, if at all – the Swedish government pushed the idea with little success during its EU presidency last year – the French levy has, in effect, been shelved.

France would have been the largest economy to impose a levy on energy use linked to a notional price of carbon. France has one of the lowest “carbon footprints” in Europe largely because of 88 per cent of its electricity comes from nuclear plants.

But the government adopted a carbon tax – originally intended to raise €3.5bn a year – to further reduce French emissions by targeting those from households, road transport, and industrial consumption of gas and oil.

Mr Sarkozy had also hoped that carbon tax would pay political dividends by helping to woo green voters to his centre-right party in Sunday’s elections, a calculation the evidently failed to pay off.
As you'll recall, the French, in particular Mr. Sarkozy, were easily the loudest demandeurs for EU-wide carbon tariffs, due in large part to the fact that, if they were going to screw their economies with a carbon tax, they wanted everyone to make sure that everybody's economies were screwed along with them.  Now, with the EU's number one carbon tax/tariff cheerleader silenced, and (as the FT notes) with the whole carbon tax issue dead in the EU, it's pretty safe to say that carbon tariffs are shelved in Europe for the rest 2010. 

And all I can say is, très fantastique!  (Ok, I promise, that's the last abuse of the French language.  For now.)

Now for the bad news.  Now we all know that Mother Gaia is a huge fan of balance, so it shouldn't come as any surprise that, as the carbon tariffs door slammed shut in the EU, it instantly cracked open across the pond:
Details are beginning to leak out about the climate bill, after weeks of closed-door negotiations among key Senate lawmakers and staff.

Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) spent the past week presenting an eight-page outline of the bill to key business groups, including the U.S. Chamber of Commerce and the American Petroleum Institute.

But the bill provides a weaker cap on greenhouse gas emissions than many environmentalists had hoped. And it’s chock-full of sweeteners for coal, oil, offshore drilling and nuclear power — energy sources viewed with some skepticism in the environmental community but seen as key to picking up the votes of a handful of moderate Republicans....

[The sponsors] hope to send a draft of their proposal to the Environmental Protection Agency by the end of this week. The agency needs six to eight weeks to do an economic analysis of the bill, according to administration officials.

Graham told POLITICO that the proposal mirrors the Markey-Waxman legislation that passed the House last June by putting an economywide cap on greenhouse gas emissions starting in 2012 — with the goal of reducing pollution 17 percent by 2020 and 80 percent by 2050.

But unlike the House bill, the Senate proposal puts different kinds of limits on different industries.

Separate caps are put on utilities and manufacturers that will have to buy and trade pollution allowances from the government, according to people briefed on the bill. A “hard collar” is put on the price of the allowances to prevent them from dropping below $10 per ton. If the price exceeds more than $30 per ton, the government will flood the market from a strategic reserve of 4 billion credits. The price is indexed to inflation and increases at a set rate.

Manufacturers will be phased into the cap by 2016 to give fossil-fuel-intensive industries such as paper, aluminum and steel time to adjust to the new system. In a letter he sent to Kerry earlier this month, Sen. Carl Levin (D-Mich.) asked that the cap be delayed at least 10 years for manufacturers.

The legislation also tries to protect those industries from foreign competition by levying a “carbon tariff” on imports of goods from countries, such as China and India, that do not regulate emissions. The proposal was drafted by manufacturing-state Democrats, who refused to support the legislation unless it protected trade-sensitive industries from foreign competition.
Sigh.  Here we go again.  Now, granted, getting this boondoggle through Congress this year is about as likely as my winning the AFL-CIO's Protectionist of the Year Award (ed. note: not a real award).  But still, it looks like it's time to pull out the ol' carbon tariffs scorecard (as of Dec. 5 2009):

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.

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