Jagdish Bhagwati

In today’s Financial Times, noted trade economist Jagdish Bhagwati strays again into the climate change debate – and he doesn’t apply his usually sharp analysis of some unintended consequences of his proposed government actions.

Bhagwati rightly rejects the Copenhagen approach to restricting carbon emissions, but then offers the World Trade Organization model to control both “stock” – previous emissions – and “flow” – ongoing ones.  He sees the WTO’s challenge and dispute settlement mechanism as a way to hold countries “feet to the fire” and force them to live up to their commitments.  In the WTO, when a dispute is settled against a country, the WTO mandates that the country within a reasonable period of time has to change its laws or policies to conform to its agreed-to obligations.  If no action is taken, the country that brought the complaint may take retaliatory action.

Just imagine the can of worms this would open up in the carbon emissions area.  Would the dispute-settlement body have the right to dictate how the offending country’s laws and policies should be changed?  Suppose a country wants to lower the competitiveness of a rival by constricting its energy use, wouldn’t bringing up a dispute be a logical way to go? And in what areas could a country retaliate? Could it get a wedge in the international trade area through border tariffs – instituting carbon taxes against the offending country?

Perhaps the most puzzling proposal in Bhagwati’s article is his recommendation to follow the Superfund model by introducing tort liability for past carbon emissions.

“The US in addressing domestic pollution created the superfund after the Love Canal incident, where a successful tort action was filed against Pacific Gas & Electric in 1996 for leaking toxic chromium into the ground water. Under the superfund legislation, hazardous waste has to be eliminated by the offending company. This tort liability is also “strict”, such that it exists even if the material discharged was not known at the time to be hazardous (as carbon emissions were until recently). In addition, the people hurt can make their own tort claims.

Rejecting this legal tradition in US domestic pollution, Todd Stern, the principal US negotiator, refused to concede any liability for past emissions. This stand is even more astonishing given that Barack Obama, the US president, belongs to a party that thrives on contributions from tort lawyers.

Evidently, the US needs to reverse this stand. Each of the rich countries needs to accept a tort liability which can be pro rata to the Intergovernmental Panel on Climate Change-estimated share of historic world carbon emissions.”

Perhaps Bhagwati isn’t that familiar with Superfund’s notorious history in arbitrarily finding anyone remotely connected with a declared site to be financially responsible for its cleanup. As CEI’s Angela Logomasini has written:

The federal Superfund law (also known as the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA) is allegedly designed to hold parties responsible for polluting property. Instead, the law arbitrarily holds anyone remotely connected to a contaminated site liable for cleanup. Responsible parties include waste generators (anyone who produced waste that eventually contaminated property), arrangers for transport of waste, waste transporters (anyone who simply transports wastes for legal disposal), operators (those who manage waste landfills), and property owners (anyone who owns the land). Under the law’s strict joint and several liability scheme, each party can be held liable for 100 percent of the cleanup costs. Liability also is retroactive, applying to situations that occurred long before Congress passed the law. Accordingly, parties ranging from small businesses, schools, and churches to large manufacturing plants have been held accountable for sites that were contaminated decades before Superfund became law.

Also, see what CEI adjunct fellow Jim DeLong had said:

The continuing possibility of Superfund liability makes it a leper from the standpoint of investors. The post-remediation liability threat is so great that no one will touch a site even though it is declared clean. Congress made every individual Superfund site into a tarbaby, exposing anyone with any connection to it to liability for all cleanup costs. No “potentially responsible party” (PRP) can defend on the grounds that it acted legally and responsibly. This regime gives PRPs strong incentives to engage in costly litigation, delaying cleanups and wasting financial resources.

Jagdish Bhagwati is rightly recognized as one of the most astute trade economists and has staunchly defended the importance of multilateral open trade without tying it to environmental and labor mandates.  His climate change proposals, however, may open the door to just that.