Thu, Sep 24, 2009 page9

• Carbon tariffs will cost a lot and deliver little

  • By Sallie James
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  Legislation to limit greenhouse-gas emissions recently squeezed through the US Congress with a “cap and trade” scheme similar to the EU’s. This Waxman-Markey bill now faces resistance in the Senate, upsetting President Barack Obama’s hopes of influencing the Copenhagen international climate-change meeting in December. Either way, he faces a real threat to international relations from this bill’s effect on jobs and trade.

  “Nothing the United States can do is more important for the international negotiation process than passing robust, comprehensive, clean energy legislation as soon as possible,” Obama’s climate envoy, Todd Stern, said on Sept. 10.

  This legislation, however, would do little to lower carbon emissions, but much to raise energy prices, destroy jobs and prolong the recession — with the extra sting of tariffs on foreign goods triggering a trade war. And far from aiding the negotiations, a bill that ties US negotiators’ hands could scupper an international agreement.

  One of Obama’s many election commitments was to reduce US carbon emissions to 1990 levels by 2020 but, after months of debate, the bill imposes much less stringent restrictions while imposing a great cost on the economy.

  An extra problem was the addition of tariffs on imports from countries without similar carbon restrictions. Obama denounced the protectionist tariffs when the House bill passed in June, but in August, 10 Democratic senators announced that their votes depended on keeping “a border adjustment mechanism.”

  The senators argue that higher domestic energy costs caused by the new legislation would send manufacturing abroad, killing local jobs and undermining the US’ global emission-reduction aims. So they want tariffs to protect US firms and workers: Punishing importers should convince other governments to introduce carbon controls, so the argument goes.

  But this idea is seriously flawed. Most energy-intensive imports to the US — up to 80 percent, depending on the product — come from other “clean” rich countries, most of which already have emissions curbs.

  China, the focus of many fears of job transfers, accounts for only a small share of US imports and only 17 percent of steel imports. Moreover, China exports only about 1 percent of its most energy-intensive goods to the US, a July study by the US Government Accountability office says. So US carbon tariffs would do little to fight global emissions.

  Secondly, the protectionist senators forget that other countries have their own ideas about who should pay for cutting emissions. Total Chinese greenhouse-gas emissions overtook those of the US in 2006, but per capita emissions in the US are well above everyone else’s: roughly four times China’s and 15 times India’s. If other countries imposed their own carbon tariffs based on per capita emissions, US exports would be badly hit.

  Any tariffs present a real and immediate danger. The protectionism of the Smoot-Hawley Tariff Act of 1930 set off a series of tit-for-tat retaliations by the US’ trading partners, turning a major recession into the Great Depression.

  Obviously, a trade dispute during an economic downturn would not be in the interests of the US or any other country — although French President Nicolas Sarkozy obstinately stated “a carbon tax at the borders is vital for our industries and our jobs,” speaking to trades unionists recently.

  Unilaterally imposing green tariffs will alienate trade partners who may be crucial to Obama’s environmental ambitions at Copenhagen. In a few days he must attempt to convince the G20 countries in Pittsburgh that his climate policies will not stall economic recovery.

  Many European politicians share this vision. Swedish Environment Minister Andreas Carlgren, whose country holds the EU presidency, recently said: “If the Senate would pass it, there would be no reason for China not to sign up” to emissions reductions.

  Back in the real world, Chinese and Indian officials have repeatedly condemned the idea of “carbon tariffs.”

  Stern admitted: “Developing countries tend to see a problem not of their own making that they are being asked to fix in ways which, they fear, could stifle their ability to lift their standards of living.”

  Obama may have a lot of explaining to do when he visits China in November, as if his recent decision to impose tariffs on Chinese tires had not stirred up enough animosity.

  Trade is mutually beneficial, promoting competition, innovation and economic development — and providing more money for environmental protection. Carbon tariffs like Waxman-Markey’s or Sarkozy’s will do little to the climate and do plenty of damage to economies everywhere.

  Sallie James is a policy analyst at the Cato Institute’s Center for Trade Policy Studies in Washington.
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