When U.S. lawmakers recently approved legislation to limit U.S. emissions of carbon dioxide and other greenhouse gases, it was widely hailed as an important new step in confronting climate change. Under the Bush administration, the United States refused to join other industrialized nations in capping emissions, arguing that to do so would add unfair costs to business and blunt its competitive edge.
But the applause for the Obama administration and the Democratic Party in pushing for a cap-and-trade law in Congress has since diminished as critics scrutinize the details. One provision that has caused concern was slipped in shortly before the House of Representatives passed the bill on June 26.
It requires the president, from 2020 onward, to impose special import taxes on goods from countries that have not enacted and enforced similar cap-and-trade controls on their global warming emissions. Only Congress can authorize the president to waive the imposition of tariffs. With economies around the world still weak, credit tight and international trade shrinking, the prospect of protectionism spreading in many different forms alarms trade-dependent Asian nations. China has condemned the U.S. for resorting to “trade protectionism in the disguise of environmental protection” while India says it is “pernicious” to use climate change as a nontariff barrier.
When heads of government of the Group of 20 leading developed and developing economies met in Washington for the first time in November, they pledged not to introduce any new protectionist measures for at least 12 months and restart stalled negotiations to liberalize world trade. They have failed dismally on both counts.
Since then, the World Bank and the World Trade Organization have recorded dozens of breaches by G20 countries — including the U.S., Europe, China, India and many others — of their promises not to subsidize exports or shield domestic industry from foreign competition to preserve jobs.
Are we heading for yet another version of protectionism, one with “green” tariffs? The U.S. measure is not yet law. The cap-and-trade legislation, which enables companies to buy and sell pollution permits while they comply with progressively tighter limits on emissions, has yet to pass the Senate, where it is expected to face tough opposition.
U.S. President Barack Obama has indicated he is concerned about the green tariff proposal, but has not said whether he would veto the provision.
Supporters say a tariff is needed to shield U.S. industries that use or produce lots of energy, and whose goods are traded globally. Otherwise such industries, which include steel, aluminum, cement, chemicals, coal, oil and natural gas, could be placed at a disadvantage compared with their counterparts in other countries without strict regulations to control emissions.
Similar arguments about the need for border adjustment taxes first emerged last year in the European Union, the world’s second largest market after the U.S., during debate over the EU’s emissions trading scheme.
To ensure that energy-intensive industries did not shift production to Asia or other regions with less stringent rules to protect the environment, the European Commission proposed that importers pay the same emission charges for non-European goods as domestic producers, in effect imposing hefty green tariffs on “dirty” imports. “We want industry to remain in Europe,” said EC president Jose Manuel Barroso. “We don’t want to export our jobs to other parts of the world.”
The U.S. is now moving toward a similar system to price, cap and trade emissions with an inbuilt protectionist measure. As in Europe, it may be part of the negotiating tactics by industrialized powers to put pressure on developing countries to comply with any new international deal to limit global warming gases and prevent potentially catastrophic climate change. The deal is supposed to be finalized by December.
Under the Kyoto Protocol, the existing treaty that expires in 2012, only industrialized economies are obliged reduce emissions, even though developing countries are expected to become the dominant global warming gas producers in future as their growth continues to outstrip the West.
However, China, India and other big emerging Asian economies are refusing to put mandatory restrictions on their industries, fearing it will drive up costs and undermine growth. They point out that most emissions from burning fossil fuels since the industrial revolution started in Europe over 200 years ago have come from the West, that per person emission levels are far higher in the West than the developing world, and that many of the goods manufactured in developing countries are produced by Western investors for export to Western markets.
Developing countries are likely to retaliate against environmental protection measures imposed by the West and challenge them in the WTO, adding to the trade tensions and protectionist poison infecting international relations.
In the negotiations leading to the climate summit in Copenhagen in December, developing countries are being asked to draw up national action plans setting out how they will try to curb emissions and promote clean energy.
Probably the toughest challenge facing the negotiators is to craft a compromise deal that will synchronize the obligations of both developed and developing nations in a way that is seen to be fair and effective.
Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.