Avoiding Green Trade Friction

Only months before the Copenhagen conference, the carbon tariff clause in America’s climate change legislation has sparked concerns worldwide.

In late June, the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009 (ACES Act), by a vote of 219 to 212. 

This comprehensive national climate and energy legislation seeks to establish an economy-wide, greenhouse gas (GHG) cap-and-trade system and critical complementary measures to help address climate change and build a clean energy economy. 

In September, several Senate Committees will address aspects of the bill, which will likely be combined to create the Senate counterpart to the ACES Act.  If the Senate passes this combined bill, differences between the Senate and House bills must be reconciled, before the bill could be sent to President Obama and signed into law.

The debate was sparked by a critical clause in the ACES Act. It would impose tariffs or “border measures” by 2020 on imports of certain goods from countries, which are not perceived as doing enough to reduce their emissions of carbon dioxide (CO2) and other “greenhouse gases”.

U.S. Debate

Reportedly, the tariff provision was included to win over lawmakers from states with energy-intensive industries.

The idea was to “level the playing field” for U.S. companies competing with those elsewhere not bound by emission caps.

The American Iron and Steel Institute lobbied hard for the inclusion of protection measures, but in the end it said those measures were inadequate.

The U.S. Chamber of Commerce joined other major business organizations warning the Senate that the tariff provision “could trigger a green trade war.”

President Obama has praised the cap-and-trade legislation but is opposed to the tariff measure.

International Debate

In Europe, France is pushing its EU partners to consider carbon tariffs as the 27-member bloc formulates a common position ahead of the Copenhagen conference in December. Still, the idea has met with opposition from several quarters in Europe.

The German minister responsible for climate change issues said developing countries would see the move as a sign of Western protectionism – “a new form of eco-imperialism” – and a violation of World Trade Organization (WTO) rules.

Meanwhile, a recent report by the WTO and the UN indicates that such taxes could in theory be crafted to be compatible with WTO law. But it would be hard to prove they were not an illegal disguised restriction on international trade, the report added.

India’s environment minister Jairam Ramesh has made it unambiguously clear that New Delhi will not agree to binding emissions targets as part of global climate-change negotiations.

China has complained about US plans for a carbon tax on imports from countries without their own emission caps, warning it could set off a global trade war.

Yes to Legislation, No to Tariffs

The effort to design successful climate policies worldwide holds the potential of hope for all nations.

It is the tariff provisions that are the primary problem. They could negatively impact U.S. relations with key trading partners and disrupt the global trading system. They should be removed from the measure.

Successful legislation that aims to restrain greenhouse gas emissions must abide by U.S. international trade obligations.

It should encourage action by other major emitting countries.

Dr. Dan Steinbock is Research Director of International Business at the India, China and America Institute.