Uh-oh. Senator Max Baucus (D-Montana) is raising the stakes on a U.S. climate bill by endorsing the idea of some sort of tariff on goods from countries that haven’t taken steps to suppress fossil fuel use. According to Reuters, Baucus, Chairman of the Senate Finance Committee, yesterday said:
“We must push our trading partners to do their part to curb harmful emissions and we must devise a border measure, consistent with our international obligations, to prevent the carbon leakage that would occur if US manufacturing shifts to countries without effective climate change programs.”
Currently the Senate Environment and Public Works Committee, chaired by Senator Barbara Boxer, has rushed through its own bill without minority input to try to catch up with the House, which passed its cap-and-trade bill – H.R. 2454 — on June 26, 2009. The House bill contains a border tax adjustment measure, while the Senate bill does not. At least, yet. But Baucus’ comments are a strong signal that the Senate bill will also include tariffs or border “adjustments,” i.e., taxes.
This unfortunate idea is gaining greater traction among global warming advocates as a way to maintain U.S. competitiveness for industries, such as steel and cement, that would be facing higher costs if an energy suppression bill to address global warming is passed. Proponents of “border measures” also see this as a way to curtail so-called leakage of carbon-intensive industries and related jobs to other countries without similar constraints. Of course, the common justification for those who want to hobble their competition is the refrain: “Level the playing field.” In Washington politics, that usually means bringing your competitors down to your level. Check out this article for some possible consequences.
These endorsements could portend a carbon tariff push in Copenhagen when world climate pukkas gather on December 7, 2009. Luckily for people in the U.S., it’s not likely that a newly minted global warming bill will be in their pockets.
Leading trade lawyer Gary Horlick testified yesterday on carbon tariffs before the Senate Finance Committee. As the Senate prepares an energy suppression/global warming bill, it is attempting to find ways to soften the “border adjustment” provisions in the House-passed bill (H.R. 2454).
Horlick points out some of the practical problems of setting up a carbon tariff system and cautions about the potential effects of such measures on the international trading system. As he notes, if the production method rather than the end-product is focused on, such processes as agricultural biotechnology may face increased challenges in the World Trade Organization:
It is tempting to say that we can re-interpret existing WTO rules to permit whatever measures are necessary to protect our environment. But do we really want to change those existing rules? The key to the U.S. economy is constant innovation.
One of the important fields where we lead the world of innovation is biotechnology, which is revolutionizing medicine, agriculture, and even many of the environmental concerns dealt with in proposed legislation (such as environmental remediation and renewable fuels). So far the United States has resisted efforts in Europe and elsewhere to limit our market access for our products because of how they are produced – from biotech means. But if we re-interpret WTO rules to allow trade barriers based on how things are made, we open up a can of worms – and might permit other countries to block our biotech exports, including major items such as corn, soybeans, and other crops.
Talk about creating chaos in the world trading system!
In the wake of the release of the Waxman-Markey energy bill, many commenters have pointed to the drastic restrictions on domestic energy use to address greenhouse gas emissions, while some, like CEI, have pointed to the huge economic costs that would result — costs that would be paid for by consumers and in terms of reduced manufacturing and jobs. Few have noted a further economic consequence — the possible disruption of the world trading system because of the bill’s endorsement of carbon border taxes on imports from countries that don’t have an energy-repressive regime. Here’s what CEI’s Iain Murray has to say about that:
The bill as drafted clears the way for carbon protectionism. It envisages “rebates” to companies that have to pay higher costs than their international competitors, which amounts to illegal state aid under WTO rules. Further, it directs the President to institute what is laughably called a ‘border adjustment’ program requiring foreign companies to pay for the cost of carbon. This is nothing more than a tariff aimed at eliminating the competitive advantage of other nations. Taken together, these provisions represent the first shot in what is likely to prove a disastrous carbon trade war.
Margo Thorning of the American Council for Capital Formation and Bill Kovacs of the U.S. Chamber of Commerce provide hard and realistic criticism of carbon border taxes in National Journal’s Experts Blogs this week.
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