Carbon tariffs falling out of favour as trade war looms


A majority of European countries are reluctant to pick up on current debates in France and the United States about carbon tariffs designed to fend off competition from countries which have not committed to reducing emissions, for fear of triggering a green trade war.

So far, France has been the only member state to openly rally for the introduction of border measures to secure the competitiveness of European industry against emerging economies. It put the measure on the table in 2008 when the EU was immersed in discussions on a revision of its emissions trading scheme (EU ETS).

Since agreement was reached on the revised directive in December 2008, carbon tariffs largely disappeared from debates until the US floated the idea in a draft climate bill. In the EU, meanwhile, France is having difficulty finding allies to rally around the cause. 

As EU environment ministers met informally last week to discuss Europe’s position for international negotiations, the Swedish EU Presidency warned that hints of protective measures would block progress towards a global deal, which it said was already too slow.

“The threat of taxes to harm developing countries would seriously make negotiations more difficult,” said Swedish Environment Minister Andreas Carlgren.

German State Secretary Matthias Machnig reportedly echoed Swedish views that carbon tariffs would send the wrong message ahead of December’s UN climate conference in Copenhagen, calling them “a new form of eco-imperialism”.

Moreover, carbon-related border taxes could potentially conflict with WTO rules, which aim to provide for free competition (EURACTIV 01/07/09). 

The EU is dealing with competitiveness issues by granting free emisssion permits to industries which it deems vulnerable to relocating in areas with less stringent environmental laws, dubbed ‘carbon leakage’ (EURACTIV 26/05/09).

The prevailing view among member states and the European Commission is that these internal measures should be the first-aid solution, while border adjustments would come as a last resort. 

US border adjustment proposal under attack

The US House of Representatives inserted a provision in its draft climate bill that allows the country to impose a ‘border adjustment’ after 2020 on certain products from countries which do not limit their global warming emissions. The move was seen as a pre-emptive measure to tackle American firms’ loss of competitiveness in the face of cheaper products flooding from countries without a carbon premium.

But President Barack Obama spoke strongly against such measures after the House had passed the bill.

“At a time when the economy worldwide is still deep in recession and we’ve seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals,” he said in an interview.

Rajendra Pachauri, chair of the UN’s Intergovernmental Panel on Climate Change (IPCC), also criticised the draft legislation, warning that it would allow developing countries to tax US exports in return.

“The United States has always stood for a free market system […] Legislation to move away from that principle is clearly counterproductive,” he told the Associated Press.

China and India immediately interpreted the pending legislation as an offensive against their industries. The US admnistration is attempting to allay their fears during the two-day UN-China Strategic and Economic Dialogue ending today (28 July).

US climate envoy Todd Stern and Secretary of State Hillary Clinton have frequently held talks with their Chinese and Indian counterparts to persuade them to take on commitments to slash their emissions. The prevailing logic here is that the more ambitious the measures that the two countries sign up to, the lower the likelihood of their having to face border measures in Western export markets.

In December 2008, EU leaders agreed on a revision of the bloc's emissions trading scheme (EU ETS; see EURACTIV LinksDossier) for the period 2013-2020.

Under the revised scheme, electricity producers will need to buy 100% of their CO2 emission permits at auction by 2020, for example.

But heavy industry, including the cement, steel, aluminium and chemical sectors, argue that a tightened ETS would inflate their costs to such an extent that they would be forced to move their factories and jobs beyond the EU's borders, leading to a 'leakage' of CO2 emissions without any environmental benefits (see EURACTIV LinksDossier).

Their hope is that a new international agreement to replace the Kyoto Protocol would help redress such imbalances.

  • 7-18 Dec. 2009: Copenhagen climate conference (COP 15): Projected completion of UN climate negotiations on post-2012 framework. 
  • By 31 Dec. 2009: Commission to adopt the list of industry sectors likely to be subject to carbon leakage. 
  • 2011: Based on this analysis, the Commission may then table measures to prevent carbon leakage. 
  • United Nations Framework Convention on Climate Change (UNFCCC):Homepage
  • World Trade Organisation (WTO):Homepage

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