Carbon tariff threat useful in climate talks
Supporters of free trade cry foul at the idea of a carbon tariff on imports from countries with lower environmental standards than Europe or the United States.
But developed nations must be able to reduce greenhouse gas emissions to fight climate change without driving their own energy-intensive industries offshore or out of business.
The threat of a border charge for carbon may help persuade China and India to increase their own efforts to curb carbon dioxide output and eventually join a global emissions-trading system. It is a useful bargaining chip provided Western governments keep carbon tariffs in reserve as a last resort. It is worth noting that a so-called carbon tariff, while controversial, would not be against WTO rules.
How to maintain industries such as steel, glass, cement, chemicals and aluminium has been a significant issue in Europe since the EU adopted ambitious goals to reduce carbon emissions last year. France has led calls for “border adjustment measures”, which could either force importers to buy carbon permits or restrict imports from producers that do not meet minimum standards.
German Chancellor Angela Merkel, whose country is Europe’s biggest industrial powerhouse, recently added her weight to this call if there is no global agreement to curb emissions.
Now that the United States is getting serious about reducing its own CO2 emissions, key lawmakers have included proposals forcarbon tariffs in different versions of a climate change bill working their way through Congress.
Critics denounce such moves as protectionism, noting that similar arguments could be used to restrict trade with countries that tolerate child labour, deny trade union rights or have no social protection for workers.
They also argue that such barriers would be hard to administer and easy to evade. But this is ivory tower thinking. It ignores the fundamental problem of shoring up public support for free trade at a time of economic difficulty in the West. Voters in the industrial regions of the United States and Europe are unlikely to support environmental measures if they simply led to business decamping wholesale to Asia, Latin America or Africa, where environmental standards were less strict. What’s more, any environmental regime this porous would simply be ineffective at reducing emissions.
The EU agreed last year to cut CO2 output by at least 20 percent by 2020 and extend the auctioning of rationed emissions allowances to more manufacturing sectors from 2013.
As a sop to heavy industry, the European Commission proposes allocating free permits initially to energy-intensive sectors at risk from international competition. The volume of free permits would fall each year to meet the EU target, and auctioning would be phased in for all by 2020.
This assumes that developing countries will gradually join in binding emissions curbs and trading over the next decade, which would obviously be preferable. But to ensure that this outcome actually comes about, it is worth keeping the nuclear deterrent of carbon tariffs on the table.