Tuesday, May 18, 2010

Center for American Progress, France Blindly Push for Carbon Tariffs

The left-leaning Center for American Progress has issued a new paper calling for the implementation of a US-EU system of carbon tariffs.  The author, CAP's Jake Caldwell, summarizes his case as follows:
Carbon tariffs—which the United States and the European Union could decide to impose on greenhouse-gas-intensive products imported from countries refusing to take action on climate change—have the potential to play an important role in these [climate change] discussions moving forward. Carbon tariffs can be an effective policy tool to reduce global emissions and preventing carbon leakage, or the migration of carbon-intensive industries to countries with more lax regulations.

But we must proceed cautiously. Carbon tariffs may also present significant risks to the multilateral trading system and the Earth’s climate if they are designed and implemented poorly and do not fundamentally reduce global greenhouse gas emissions. That’s why the United States and the European Union should work together to design and implement an open and transparent approach to carbon tariffs as part of an overall effort to reduce global greenhouse gas emissions.
Caldwell goes on to explain, as pleasantly as possible, how and why carbon tariffs should be a part of the United States' and EU's future climate policy plans.  As to the latter issue, Caldwell's two primary reasons for supporting carbon tariffs are (i) to stop "carbon leakage" (i.e., the movement of emissions-intensive production to poorly regulated countries); and (ii) to ensure the competitiveness of the domestic industries being strangledregulated by new climate change schemes.  Unfortunately, Caldwell's discussion includes not a shred of evidence that carbon tariffs would actually, you know, achieve those objectives.  (Seriously, there's not a single link or footnote to anything of the sort.)  On the other hand, Caldwell could have spent two minutes on this blog and found oodles of scholarly evidence (see, e.g., here, here, here and here) showing that they would not.

As for the "how," Caldwell provides a laundry list of ideas about what his ideal system should entail: (i) apply carbon tariffs in an open and transparent manner; (ii) exempt least developed countries from tariffs; (iii) consider countries’ greenhouse gas reduction efforts; (iv) establish a joint US-EU working group to identify the relationship between trade and climate change issues; (v) invoke a joint US-EU agreement to apply a “peace clause” for an initial period of 10 years; (vi) allow national leaders to make a final decision on carbon tariffs; and (vii) consider other policy options to address carbon leakage and competitiveness.

I won't get into all of these issues, but I find (i) and (iv) to be really, really interesting (and not in a good way).  On "transparency and openness," Caldwell doesn't really explain how that would work, but I (and many scholars and developing countries) am rather skeptical that such "transparency" is possible or even helpful for developing a "fair" system.  Indeed, I wonder if he's ever seen or read a 100+-page Department of Commerce decision memorandum in a US trade remedies investigation - one that imposes supposedly "remedial" tariffs of 100% or higher on "unfairly traded" Chinese imports, and requires a Rosetta Stone to even begin to understand (hence, why I'm employed).  And that's just the public memos.  There are always hundreds more pages of proprietary calculation documents.  So knowing how our existing remedial tariffs are calculated and imposed on "unfairly-traded" imports, does Caldwell really think that similarly "remedial" tariffs on "non-green" imports would be calculated and imposed any differently or better?  Oh, and let's also keep in mind who's lobbying for, and drafting, these carbon tariff "transparency" regulations.  (Hint: it ain't developing country governments, their exporters or US consumers.)

On point (iv) (i.e., the "joint US-EU working group to identify the relationship between trade and climate change issues"), I'm just flat confused.  According to Caldwell, his working group would "consider a range of issues including the use of carbon tariffs and... guide the WTO’s approach to these issues."  Well, considering how darn controversial carbon tariffs are for developing countries and that they could literally start a trade war, shouldn't an honest and sound environmental policy first consider and determine the "relationship between trade and climate change" before strongly advocating dangerous systems that include border measures based on that relationship?  And second, does Caldwell actually think that a US-EU working group, which excludes 151 other WTO Members, would be well-received and adopted at the WTO, which relies on consensus-driven decision making?  Or does he think that the WTO's seriously independent Appellate Body would gladly be "guided" by the very developed countries whose carbon tariff measures would no doubt be challenged (by India, China or other Members) before it?  (Quick answer: Not gonna happen, dude.)

And speaking of the WTO, it's a tad, ahem, unfortunate that Caldwell glosses over the very serious legal concerns raised by India and others that carbon tariffs don't comply with WTO rules.  His only legal justification is the now-notorious joint paper by the WTO and the UNEP which, as Caldwell rather coolly admits, only "suggests border adjustment measures may be consistent with WTO rules in certain circumstances." (Waffling emphasis mine.)  Of course, all those qualifiers are totally necessary because Cato's Sallie James and the Indian Government, among others, have both provided ample legal argument that most carbon tariff schemes would not be consistent with global trade rules.

Indeed, it's James' analysis which is most interesting here because one of her paper's main points was that WTO rules necessitate that "[a]ny trade-related measures (such as tariffs on goods from noncapped countries) need to be based strictly on the goal of protecting the environment, rather than an attempt to level the playing field for domestic competitors shackled by climate change regulations. Breaking the link between the trade measure and the goal of protecting the environment is a sure invitation to WTO dispute-settlement proceedings."  Yet, as noted above, one of Caldwell's two big reasons for carbon tariffs is the need to maintain the competitiveness of US and EU manufacturers.  In other words, Caldwell in one breath brushes off WTO concerns over carbon tariffs, yet his primary reasoning for their use is precisely what will trigger a big WTO dispute.

Umm, what!? 

So to recap, Caldwell (i) provides no empirical support for, and ignores the boatloads of evidence against, his main carbon tariffs justifications; (ii) proposes a "system" that is almost certainly impractical; and (iii) ignores carbon tariffs' legal problems under WTO rules.  But other than that........

But hey, all's not lost for Caldwell, as today's other carbon tariffs news shows that he's not alone out there in his support for the controversial measures.  Euractiv reports that the French government, fresh off the collapse of its own national efforts to impose carbon tariffs, is aggressively pushing for them at the EU.  Problem is that most every other European nation (minus Italy) and the EU's Trade Commissioner Karel De Gucht (among others) oppose carbon tariffs because they'd raise prices for consumers and possibly start a trade war.

Funny how Caldwell, while mentioning France and Italy, also fails to mention that stubborn little fact, huh?

(Actually, no it's not.)

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