Until about a week ago I had never heard of carbon border taxes. But as I have since discovered they are just one of a number of measures being considered by some developed nations to ensure they do not lose commercial advantage as a result of growing global pressure to protect the environment.
The argument of those who would introduce carbon taxation on the exports or services of others runs roughly as follows. ‘The developed world in response to concerns about climate change is introducing quotas on carbon emissions from its factories, power utilities, airlines, hotels and in due course other industries. However, unless there is a mandatory global successor agreement to the Kyoto Protocol on climate change, rapidly industrialising emerging markets such as China, Brazil or India are unlikely to introduce such schemes. Thus there is a danger, so the argument runs, that production and services will migrate to nations or regions where levels of environmental regulation are more lax. Accordingly if companies in the developed world are not to be disadvantaged by emerging markets, there is a need for the developed world to introduce some form of carbon related taxation on imports or the services provided by others.’
It is not hard to see that if introduced, it is an approach that will have potentially serious implications for small economies such as those in the Caribbean that must improve their export competitiveness if they are to see any benefit from the commitments they have made to open their markets and to liberalise trade.
Unusually in these countries support for carbon taxation comes from a wide spectrum of opinion, including well-meaning environmental campaigners, non-government organisations that see this issue as their next popular cause and unlikely bed fellows that include protectionists, unions seeking to prolong the life of older smokestack industries and lobbyists for companies that are large carbon emitters.
In the US this has led to the inclusion in draft legislation before Congress of clauses that requires US importers from nations that do not control carbon emissions to either pay a fee or to purchase carbon credits of the kind that US companies may be subject to.
Europe is taking a similar approach. While it makes clear that it will not be seeking a carbon border tax on imports, it might require its importers to purchase carbon credits if no global carbon trading scheme can be agreed in the context of a successor agreement to the Kyoto Protocol.
More generally, the European Commission recently announced measures for reducing greenhouse gas emissions by a twenty per cent by 2020. At the heart of the EC’s policy is a plan to obtain international agreement to extend globally its presently imperfect internal carbon trading scheme. Its approach signals the direction of its global ambition for cutting greenhouse gases. Its new proposals envisage that by 2020 twenty per cent of European energy and ten per cent of all fuel for transport will come from renewable sources. Central to the EC’s proposal is the extension and perfecting of the EU’s present carbon trading scheme. This presently issues tradable licences to member states to cover a much wider range of manufacturing and service industries including those that are large polluters or significant energy consumers, operations such as power generation and refining, but it is intended that these will be expanded to cover a wide range of other industries including airlines, cement, steel and paper plants.
In what appears to set an interesting precedent, poorer countries among the new EU member states in Eastern Europe will be allowed to increase greenhouse gas emissions on the basis that their economic development would be held back by being forced to make large cuts in carbon emissions.
At a global level this would seem to set the scene for a further debate of the kind that has brought the Doha Round at the WTO to a near halt. That is to say one about how less wealthy or smaller nations are to develop if at every step of the way the developed world is unable to accept that competition for investment and trade requires the cession of degrees of economic and political power to other states.
In the margins of last December’s UN climate change conference in Bali, ministers and officials from the US, Brazil, Japan, the EU, China, India and other nations – although none from the Caribbean or Africa – gathered to discuss the link between international trade and climate policy. Their objective was to begin a dialogue about how policies to combat climate change could be structured so that their social and economic impact on development might be ameliorated.
At the meeting there was a consensus that the issue required multilateral agreement involving the US, China and India. Without this, new global trade tensions could arise.
According to some of those present, the EC suggested that failure to reach a global deal on climate change could result in the development of offensive trade policy measures such as border tax adjustments on certain imports, in order to leverage agreement on climate change objectives. European representatives also noted that failure to include all major economies in any post 2012 agreement on climate change could have the same consequences.
At the meeting China indicated that it felt that that there needed to be acceptance of the principal that poorer nations should have differentiated solutions because of industrialised countries’ historical responsibility for greenhouse gas concentrations in the atmosphere.
While there was agreement that steps to address climate change must leave developing countries enough room in which to develop, how this is to be determined was far from clear.
For the Caribbean these are developments that suggest the emergence of a new front in the global war of words, and that environmental protectionism is yet another issue to factor into its changing hemispheric and global relationships.
Previous columns can be found at www.caribbean-council.org
