Thursday, August 6, 2009

Senators to Obama: Screw the World, We Want Carbon Tariffs!

I've written a couple times on the growing global revolt - by developed and developing countries alike - against the use of carbon tariffs as a complement to domestic climate change measures. The tariffs are in the House "Waxman-Markey" Cap-and-Trade Bill, and are intended to offset any competitive disadvantage that the scheme would impose on US industries. (Of course, this begs the question "why the hell do we want to further hamstring US businesses," but that's a theme for another blogpost.) President Obama has voiced tepid opposition to the carbon tariffs and has said that he'd prefer they not be in the Senate version of Waxman-Markey.

Well, the President's "ferocity" has not sat well with several Senators from - surprise! - states with a significant percentage of union constituents. And Al Franken. They shot off a stern letter to the President, demanding that any Senate energy bill include carbon tariffs, and their ultimatum tees up a pretty serious predicament for the President. Here's the WSJ:
Ten Senate Democrats whose votes are pivotal to the success of climate legislation urged the Obama administration on Thursday to support levying tariffs on goods from countries that don't limit their greenhouse-gas emissions.

President Barack Obama has resisted the idea, saying it would send "protectionist signals" to the world.

In a letter to Mr. Obama, the lawmakers said it was critical to include a "border mechanism" in climate legislation to ensure it would be "trade neutral and environmentally effective." They also warned that it would be "extremely difficult" to support a bill that didn't "deal with these important issues."

In response to the senators' letter, a White House spokesman said in a statement that the president "believes that the most effective approach to maintaining a level playing field is to negotiate a new international climate change agreement that ensures that all the major polluters take significant actions to reduce their greenhouse gas emissions."

Most of the senators who signed the letter are from manufacturing states that were pivotal to Mr. Obama's 2008 election victory. Without their votes, it is unlikely Mr. Obama could achieve his goal of getting a climate and energy bill signed before global climate talks in Copenhagen in December.

Several Senate committees are at work on climate-change legislation and are expected to produce proposals next month.

Mr. Obama has expressed concerns about a tariff provision in climate legislation approved by the House in June. That bill would levy tariffs starting in 2020 on a range of products from countries that haven't adopted similar programs to control greenhouse-gas emissions.

Mr. Obama hasn't said whether he would veto climate legislation if it contains tariff measures. "At a time when the economy world-wide is still deep in recession, and we've seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals," Mr. Obama said after the House bill passed in June.

The Chinese government has warned that a carbon tariff could lead to a trade war. China has so far refused to commit to specific targets for cutting emissions, but is continuing to discuss the issue with the Obama administration in hopes of reaching a global agreement later this year.

The letter to Mr. Obama was signed by Democratic Sens. Sherrod Brown of Ohio, Debbie Stabenow of Michigan, Russell Feingold of Wisconsin, Carl Levin of Michigan, Evan Bayh of Indiana, Robert Casey of Pennsylvania, Robert Byrd of West Virginia, Arlen Specter of Pennsylvania, John D. Rockefeller IV of West Virginia and Al Franken of Minnesota.

Some U.S. industries, particularly steel makers, have called for toughening the tariff measure in the House bill. But other U.S. businesses have expressed concern that allowing tariffs in climate legislation could spark a trade war. ...
The full text of the letter is here. The Senators - all Democrats, by the way - are all vocal protectionists, so this is pretty standard fare for them (except Al Franken, of course - he's blazing a new protectionist trail). But the President's in quite the pickle on this one. Resist carbon tariffs: lose 10 critical Senate Democrats for the Cap-and-Trade vote. Support carbon tariffs: further cement America's "protectionist" image, anger most of the world, and maybe start a trade war. (Not to mention further ceding American trade policy to the insular whims of Congress.) It's pretty much a lose-lose(!) decision and it'll be very interesting to see how President Obama responds.

I, for one, really hope that Obama ditches the Senators and vocally opposes the inclusion of carbon tariff provisions in the Senate energy bill (dubious merits of the bill aside). It would send a strong signal to the world that congressional jokers like Sherrod Brown don't control US trade policy, and it's about time he stood up to them. It might even start Obama down the long, long road of bringing the Democratic party into the 21st century on trade. (See Dan Ikenson's and my op-ed here on this subject.)

But given Obama's past willingness to quietly sacrifice 60+ years of American free trade principles on the altar of his own political gain - see, e.g., "Buy American," Mexican trucking, and the stalled Panama, Colombia and South Korea FTAs - I'm doubtful that he'll jeopardize one of his landmark policies for the sake free trade.

I hope I'm wrong.

(Although I still hope the underlying bill dies, of course.)

Oh, and as a post script, let's update the carbon tariff scorecard:

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.

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