Reports Probe International Dimensions Of U.S. Climate Policy

May 21: A new report from World Resources Institute (WRI) and the Peterson Institute for International Economics (PIIE) indicates that U.S. climate change policy can reduce emissions and ensure fair international competition without carbon tariffs, by pursuing international agreements on key industries and targeting relief specifically to impacted domestic firms. The report, Leveling the Carbon Playing Field: International Competition and U.S. Climate Policy Design, is the first in a series of publications from WRI and the Peterson Institute that will examine the international dimensions of U.S. climate policy. Jonathan Lash, WRI President said, “U.S. climate change policy must address international competition through smart policies aimed at the handful of most disadvantaged industries. We must take care to do more good than harm, and create opportunities, not barriers, for further international cooperation.”

The report provides an analysis of proposals that address international competition in climate change legislation, such as the Climate Security Act currently being considered by Congress. On the same day, Senators Barbara Boxer (D-CA), Joseph Lieberman (I-CT), and John Warner (R-VA) released their Substitute Amendment to Climate Security Act (S. 2191) which is expected to be voted on June 2, 2008 [See WIMS 5/22/08].

The report examines what effect “carbon emissions caps” would have on the industries likely to face the strongest international pressures from climate legislation: steel, copper, aluminum, cement, glass, paper, and basic chemicals. Electric utilities are also carbon intense but are not as vulnerable to international competition. According to a release, there is growing concern that domestic climate change legislation would increase costs for carbon-intensive industries, exposing them to greater competition from developing countries, which would have no similar regulations. Proposals to address these concerns include providing free emissions allocations, increasing costs on imported carbon-intense commodities, or encouraging other countries to impose emissions caps of their own.

However, the book finds that several of the proposed options would likely not provide the intended relief, and in some cases could either make things worse or have adverse consequences. For instance, broad carbon tariffs could be difficult to assess and enforce, and provide no opportunity for exporters in developing countries to benefit from adopting higher standards. But trade measures could be tailored to provide this incentive.

To date, many of the trade-specific measures have been intended to bring China to the climate negotiating table. However, China’s exports of carbon-intense goods to the U.S. are relatively small. Instead, the book finds that Canada is the leading exporter to the United States in all categories except basic chemicals, where the leader is Trinidad and Tobago. Europe and Russia are next in importance. Therefore, trade measures provide little incentive for China to adopt stricter emissions regulations, and could sour the prospects for international cooperation.

In addition, China is already seeking to curb exports of carbon-intensive goods due to local energy and environmental concerns, and has recently implemented border treatment for goods like steel that are equivalent to imposing a carbon tax of $50 per ton of CO2. The book’s authors argue that the means of engaging China and other developing countries in reaching international agreements on key sectors is more promising than many think, and would more successfully address both competitiveness and climate concerns than unilateral carbon tariffs at the U.S. border. As part of an international sectoral agreement, trade-specific measures could play a role in creating incentives for individual foreign firms to reduce emissions.

Until an international agreement is reached, U.S. legislators can maintain a level playing field for carbon-intensive manufacturing through domestic policy design. Costs for trade-exposed industries, which account for less than 6 percent of U.S. emissions, can be controlled in a way that does not compromise the environmental effectiveness of U.S. climate policy or risk trade conflicts by imposing border tariffs unilaterally.

At a luncheon event announcing the report, WRI and PIIE indicated that, "In recent presidential-campaign developments, John McCain has backed away from the threat of carbon tariffs, while Barack Obama hints that the issue will serve as a litmus test for whether McCain is serious about climate policy. Trade links to climate policy will only continue to heat up as the full Senate begins debate on June 2 of the Lieberman-Warner bill, which includes provisions for carbon-based border tariffs. This new book argues that such a unilateral approach will be unsuccessful both in protecting U.S. industry and bringing other countries, such as China, to the negotiating table. Speakers will offer alternatives that would prevent U.S. industry from migrating to countries without climate policy, strengthen international negotiations under which those countries will reduce emissions, and avoid starting a trade war."

Access a release on the new report and links to related information (click here). Access an overview and related information including charts and US-CAP recommendations (click here). Access the complete 117-page report (click here). Access the WRI U.S. Climate Change Policy website for additional information (click here). Access links to the luncheon event introductions, audio/video presentations, & Q&A (click here). [*Climate]