Carbon Conflict?

London, UK - 30th December 2009, 15:05 GMT

Dear ATCA Open & Philanthropia Friends

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

In the wake of the climate chaos summit in Copenhagen, some advanced countries are talking about imposing carbon tariffs, which refer to special carbon emission duties imposed on imports of carbon-intensive goods.

The US Clean Energy and Security Act, passed by the House of Representatives this year, first unveiled clauses related to carbon tariffs. The legislation allows the US president eventually to impose duties on imports of carbon-intensive goods such as steel, cement, glass and paper from countries that have not taken measures to cut their own emissions. The Obama administration seeks to stimulate the world's largest economy with the help of the green industry.

The French National Assembly and the Senate voted in October and November respectively to pass a proposal to tax carbon dioxide emissions from 2010. According to the proposal, the French government will apply a tax of 17 Euros (USD 25) per ton of emitted carbon dioxide from January 1st, 2010. France has argued that the European Union (EU) should introduce carbon tariffs if the international community failed to reach an agreement at Copenhagen. France has been an active supporter of carbon tariffs which could bring it potential economic benefits, as the country enjoys a low-carbon economy with most of its electricity coming from carbon-free nuclear plants.

New Carbon Economy

Advanced countries appear to be building a new carbon economic order in the 21st century. In the US and Europe, carbon capitalism and finance are beginning to take shape as relevant legislation, policy and trade systems. Carbon-based checks on market expansion and processes to secure competitive advantage are now nearing completion. The key argument is that if the industrialised world has to accept binding targets for reducing their greenhouse gas emissions, then Beijing and Delhi must do the same. Workers in the industrialised world cannot lose their jobs to China and India because those countries are not participating in Green House Gas (GHG) cuts in a way that is measurable, reportable and verifiable. This potential move by the industrialised world has raised eyebrows globally and left developing countries deeply concerned that it may be a disguised form of trade protectionism. There appear to be three considerations when deciding to levy carbon tariffs on imported products:

1. Creating more jobs in the developed world;
2. Protecting local industries; and
3. Regaining leadership in the global economy.

Carbon Tariff Threats

Western leaders are increasingly getting more open with threats to make the most CO2-intensive imports more expensive with the help of punitive tariffs. The argument goes that if the West protects the environment via tariffs then climate sinners will not dump high carbon intensity products into our markets. The Americans and Europeans even tried to accommodate the possibility of unilateral penalties in the final Copenhagen document, without success.

Carbon tariffs, if introduced, will not only undermine the global drive to fight climate chaos, but also hurt global trade and economy. It is not a new fear in the industrialised world, that aggressive action on climate chaos could lead to local economic disadvantage. As a result, many environmental lobby groups in the West have long been calling for the establishment of a global emissions trade system with markets. It is a simple and captivating idea for many: each state gets a certain amount of CO2 allowances. Those who want to emit more must buy emissions rights from other countries that emit less CO2. Ideally, poorer countries would automatically make money, and rich countries would at the same time have a financial incentive to reduce their CO2 emissions. However, such a system only works if all states participate — and industrialised countries' fears, that this won't happen, were confirmed in Copenhagen. In particular, large emerging economies like China and India wish to have minimal climate protection obligations and to give their businesses competitive advantage in the global market.

Geo-Political Balance

Copenhagen has shown that the world still has to find its new Geo-political balance. French President Nicolas Sarkozy has repeatedly called for EU punitive tariffs on products from big emitters, should no meaningful agreement come from Copenhagen. Now that this has occurred from a European perspective, the question is how serious the European Union and its major countries are about this issue. The French are now working together with Germany on such plans. Along with Paris, Berlin is examining ways in which locational disadvantages for business could be prevented.

World Trade Organization

The World Trade Organization (WTO) has disqualified ecological tariffs as unjustified obstacles to trade. This is mainly due to an iron-clad principle of international trade law: equal treatment. Identical goods must be treated equally. It is irrelevant whether a laptop computer was produced in an environmentally friendly, but more expensive manner in the European Union or in a less ecological and less expensive manner in China or India. This also applies to climate protection. As a result, solving the problem with punitive carbon taxes is highly problematic in terms of international trade law. Countries including Sweden in the West and China and India in the East have criticised the proposal of carbon tariffs for breaching the rules of the World Trade Organization (WTO) and the principle of "common but differentiated responsibilities" stipulated in the UN Framework Convention on Climate Change (UNFCCC), saying it would seriously hurt the interests of developing countries.

However, there is a window of opportunity with targeted interventions in the world trading system to bring the worst polluters to reason — or at least bring them back to the negotiating table. When it comes to a few particularly environmentally damaging products such as steel, cement, glass and paper it is possible to imagine punitive tariffs. That would mean tariffs would be reduced for those goods which are produced in an environmentally-friendly way. We are coming into a phase, where individual countries such as France or trading blocs such as the European Union may try out their own versions of carbon tariffs, and see how far they could push or want to go. It is clear, however, that the possible environmental penalties would be directed mainly against developing countries. The industrialised world must now ask itself the fundamental question of which products they want to continue to produce abroad at much lower labour cost but much higher environmental pollution? Co-operation between the North and the South is the only way. A "Carbon Conflict" is the last thing that either hemisphere needs during The Great Unwind and The Great Reset.

[ENDS]

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