Bridges Trade BioRes • Volume 9 • Number 5 • 20th March 2009

Call for Tariffs Intensifies as Cap-and-Trade Hits US Agenda

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With a new administration in power and a major international conference on the horizon, climate change policy has re-emerged on the agenda in the US Congress. But as the much-anticipated issue takes centre stage, some politicians are already calling for trade barriers to help US industry cope with anticipated challenges if a cap-and-trade scheme is introduced.

Perhaps the most notable concern regarding US President Barack Obama’s proposed US emissions trading policy came from US Senator Sherrod Brown, who says that a climate change bill should include tariffs to protect domestic manufacturers. “If a US company, say a steel mill in Ohio, if their cost goes up dramatically for cutting carbon, it’s one more reason to think they’re not going to be competitive…they lose jobs,” Brown said during a recent speech at US think-tank the Worldwatch Institute.

Also, Senator Brown continues to advocate the inclusion of border tariffs in the climate change bill, a measure that some analysts say would violate WTO regulations. But despite these WTO concerns, other lawmakers have said they share Brown’s sentiment - especially those in Midwestern states that depend heavily on industry and foresee an enormous economic burden if a US emissions trading programme is approved.

Emissions trading scheme faces bipartisan opposition

Last June, Brown was part of a group of senators that presented a letter to Senate Majority Leader Harry Reid and California Senator Barbara Boxer criticising a proposed climate change bill and the money generated from selling carbon emissions permits.

“Much of these funds will be indirectly paid for by consumers through increased energy prices,” the letter reads. “The federal government has a fundamental obligation to ensure these funds are being spent in a responsible and wise manner.”

Although Obama’s Democratic Party holds a majority in the US Congress, not every member of his party fully backs the emissions trading policy. But Reid seems ready to move forward with climate change legislation and announced recently that Congress would try to have an emissions trading bill approved by the middle of this year.

Obama does support the granting of subsidies through a climate bill, specifically for renewable energy, which could make the legislation more appealing to wavering Congress members. But recent studies show that such subsidies would significantly increase the cost of the emissions policy. Also, some US policymakers are demanding extra incentives for their states, such as permit price caps and returned revenue from the sale of permits.

Within the Republican Party, opposition is considerable. Lisa Murkowski, a senator and member of the Senate Energy and Natural Resources Committee, has advised against a hasty drafting of a climate change policy bill. “To merge energy and climate change legislation and pass the bill this year would likely founder because of strong differences among lawmakers over ways to control greenhouse gas emissions and allocate the costs,” Murkowski said earlier this week.

Evidently there are divergent views throughout the US Congress about how and when to draft a climate change bill that is under close scrutiny from the international community. Many countries have said in the past that they are waiting to see a final US climate change policy, as it could influence negotiations at the next UN Framework Convention on Climate Change (UNFCCC) conference, to be held in Copenhagen this December.

Congress still reluctant to commit

The US Congress has long been reluctant to act on climate change. Despite contributing more than one-fourth of total global greenhouse gas emissions, the US declined to ratify the Kyoto Protocol. Kyoto was initially adopted at the third UNFCCC Conference of the Parties (COP-3) in December 1997.

With political and economic concerns strongly tied to the prospect of drafting legislation to combat greenhouse-gas emissions, Congress is still reluctant to commit to anything binding, especially the emissions trading policy that has been proposed by President Obama.

An emissions trading - or cap-and-trade - scheme, which was developed previously through the Kyoto Protocol, would allow Congress to determine a certain limit for carbon emissions each year. Permits would then be auctioned to different industries in the US so that they could pollute, but only up to the amount designated by the permit. Less polluting industries could then sell their permits to more heavily polluting industries.

But some members of Congress consider the market-driven aspect of emissions trading a critical drawback of Obama’s bill, due to the current economic downturn and the dismal state of the European Union’s emissions trading program (see Bridges Trade BioRes, 20 February 2009, http://ictsd.net/i/news/biores/41136/).

Developed / developing country divide still a barrier

The US has been especially resistant to signing on to international treaties and agreements on climate change because it argues that major emerging economies, such as China, should be held more accountable for their heavy industrial polluting, despite the fact that they are classified as developing countries. But many developing nations insist that rich countries carry the burden to act, and say they need greater access to climate change mitigating technologies from the developed world before they can implement cleaner industrial practices.

The developed-developing country divide continues to be an obstacle, a fact that was made apparent during the most recent Conference of the Parties, held in December of last year in Poznan, Poland, when consensus on most issues remained elusive (see Bridges Trade BioRes, 15 December 2008, http://ictsd.net/i/news/biores/36372/).

Now, world leaders are scrambling to find some sort of common ground before the next conference in Copenhagen, where Parties hope to create a new climate change policy as the 2012 expiration of the Kyoto Protocol approaches.

Ongoing rhetoric since Obama has been elected seems to indicate that he is serious about environmental issues, especially greenhouse gas emissions. He already has allocated a sizeable portion of the almost US$ 800 billion financial stimulus package to energy and cleaner environmental practices and he has also been working closely with the US Environmental Protection Agency, ordering it to develop higher fuel-efficiency standards for cars.

But some observers say the severe economic downturn, both in the US and around the world, could impede Obama’s environmental goals. Indeed, Obama’s lack of action on establishing a comprehensive climate change policy thus far has some pundits speculating that the environment portfolio has slipped somewhat on the new president’s agenda.

ICTSD reporting; “U.S. Climate Change Takes Center Stage In Congress,” REUTERS, 13 March 2009; “Sins of emission,” THE ECONOMIST, 12 March 2009; “The greening of Canada?,” THE ECONOMIST, 23 February 2009; “Trade Concerns Raised in U.S. Climate Debate,” WORLDWATCH INSTITUTE, 13 March, 2009; “US cap/trade bill may not pass this year-senator,” REUTERS, 16 March 2009; “NFTC Cautions Against Global Protectionism in Response to Financial Crisis,” NATIONAL FOREIGN TRADE COUNCIL, 28 January 2009.