A green trade war over climate change

John Dimsdale May 26, 2009

A green trade war over climate change

John Dimsdale May 26, 2009


Kai Ryssdal: If you follow the debate over climate change you’re about to start hearing and reading a lot of news coming out of Copenhagen, Denmark. The U.N. is having a conference there in December that it hopes will replace the Kyoto Treaty of a decade ago. In Copenhagen today a group of international business CEOs laid down their marker for that conference — deep cuts in greenhouse gas emissions, preferably by limiting carbon pollution and then letting companies buy and sell pollution quotas.

Congress is debating a climate change bill that uses the same basic idea. Cap and trade is the shorthand. But for companies that might have to operate within cap and trade rules when their foreign competition in say, China, won’t have to — it’s a much longer story. One that could see the fight against climate change turn into a green trade war. Our Washington bureau chief John Dimsdale reports.

JOHN DIMSDALE: Many U.S. business leaders say the costs of cracking down on greenhouse gases will put America’s already struggling manufacturers at a competitive disadvantage. Those that can make their products more cheaply abroad will simply move to countries that don’t limit emissions, says Kevin Kearns of the U.S. Business and Industry Council.

KEVIN KEARNS: They’ll move to China so they take advantage of cheap electricity from these filthy coal-fired plants in China. And they’ll supply the American market from these locations.

That would mean fewer jobs here at home. But no country likes the scenario of polluting competitors undercutting prices in their home market, says Gary Hufbauer at the Peterson Institute for International Economics.

GARY HUFBAUER: Countries say, well, if we’re going to take measures, we have to do something at the border to prevent the same product being produced abroad and just imported by our country. So those thoughts trigger potential for trade wars.

So lawmakers here have added a provision to the greenhouse gas legislation that echoes the European Union’s approach. It gives energy intensive companies like steelmakers, chemical plants, and paper mills the right to demand tariffs on imports if after five years they can prove unfair carbon competition.

MICHAEL LEVI: On the surface that seems fairly reasonable, but it won’t necessarily be seen as so reasonable by others.

Michael Levi at the Council on Foreign Relations says trading partners and domestic importers of cheap foreign materials, say car parts, fear the climate tariffs are ripe for abuse.

LEVI: There is potential for people to press for trade measures, for example, tariffs against steel, under the guise of leveling the climate playing field, but really for more base protectionist purposes.

Supporters of the tariff allowances in the climate-change bill, like Kevin Kearns of the U.S. Business and Industry Council, are particularly worried about imports from China and other developing countries.

KEARNS: The developing world, and China, is, I don’t think, part of that any more because they’ve come so far so fast. They’re perfectly happy to pollute. Take subsidies from foreigners to help with their environmental problems, etc. But they’ll be the first to yelp if there is anything in the new legislation that might be considered a subsidy.

Such as a tariff. Environmentalists claim these worries about Chinese advantages are exaggerated. China, they say, is already imposing stiffer appliance standards and installing cleaner coal-burning technology. And when it comes to intensive greenhouse-gas-emitting imports like steel and chemicals and cement, the Council on Foreign Relations’ Michael Levi says China’s not the problem anyway.

LEVI: Most energy intensive U.S. imports do not come from China. They do not come from India. They come from Canada, from the European Union. They come from places where we should be expecting fairly significant measures to cut emissions. So the competitiveness question really gets shrunk by that.

Countries that either already limit emissions, or plan to, won’t face any tariffs. And there are no advantages to domestic companies looking to sidestep cleanup costs by moving to those countries. All sides say the easiest way to avoid a green trade war is to negotiate a global pollution agreement that sets the same emission limits on all countries — equally.

In Washington, I’m John Dimsdale for Marketplace.

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