Bridges Weekly Trade News Digest • Volume 13 • Number 14 • 22nd April 2009
Obama Administration Not Ready to Support Carbon Border Tax: Kirk
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A recent letter from US Trade Representative Ron Kirk downplays the notion that the Obama Administration would implement a border tax on imports from large developing countries to help domestic industry under a cap-and-trade scheme.
Kirk issued the statement in response to questioning from Republican Congressman Joe Barton regarding comments made by Energy Secretary Stephen Chu at a hearing in the House of Representatives in early March. Chu had suggested that in order to prevent ‘leakage’ and protect local industry under an emissions cap-and-trade programme, the US would not rule out using tariffs and other trade barriers to pressure countries like China and India to cut back on emissions. “If other countries don’t impose a cost on carbon, then we will be at a disadvantage,” Chu said at the hearing.
Leakage – the movement of carbon-intensive industry to countries with lax environmental standards – is a prime concern for the Obama administration as it mulls a proposed emissions trading scheme that was unveiled in Congress on 31 March.
The 648-page American Clean Energy and Security Act of 2009, introduced by Democrats Henry Waxman and Edward Markey, would establish an aggressive cap-and-trade programme, as well as initiatives aimed at cleaning up the environment, promoting renewable energy, and updating standards for transportation emissions.
Some critics argue that an emissions-trading, or cap-and-trade, scheme would place the US economy in jeopardy because it would force domestic industry to compete with countries that lack similar restrictions. But the sponsors say their proposal will, in fact, strengthen the US economy.
“This legislation will create millions of clean energy jobs, put America on the path to energy independence, and cut global warming pollution,” said Waxman. “Our goal is to strengthen our economy by making America the world leader in new clean energy and energy efficiency technologies.”
The means by which such goals will be achieved has been the subject speculation. Some observers have warned against implementing climate-related measures that might be considered protectionist.
But some US manufacturers are more concerned about how the bill might impact their business. The US steel industry recently spoke out about Washington’s plans for cutting greenhouse gasses, saying that steel produced in countries such as China and India should face import tariffs if their industries do not have to adopt similar emissions targets.
“Chinese steelmakers enjoy an unfair advantage in global trade due to the lack of enforcement of exceptionally weak pollution standards,” Scott Paul, the executive director of the Alliance for American Manufacturing, said recently.
American steelmakers say their cost of production has already gone up significantly as a result of investments in pollution control systems aimed at reducing particulates and components of acid rain.
Terry Straub, a senior vice president at US Steel Corp, says that government should carefully consider the impact of a possible flood of cheap foreign imports and suggests a carbon fee be placed on steel from any country that does not regulate greenhouse gas emissions.
The proposed bill acknowledges the obstacles that the steel, aluminium, cement and chemicals industries will face under cap-and-trade. To that end, the draft legislation would offer assistance in the form of rebates, incentives for carbon capture projects, and a special reserve of allowances.
Under the rebate programme, the government would distribute payments to manufacturing industries adversely affected by foreign competitors located in countries that do not have similar emissions-reduction requirements.
But if such measures prove inadequate, the bill would allow the president to establish a so-called ‘border adjustment programme’, which would require importers of emissions-heavy goods from countries that do not regulate carbon emissions to purchase special allowances from the government.
Some observers say that such a programme would amount to thinly veiled protectionism.
China has been particularly vocal over the suggestion of any such US import tariffs, arguing that the US could use the cap-and-trade scheme to justify protectionism. China recently surpassed the US as the world’s top emitter greenhouse gases, but Chinese officials have frequently said that the onus of emissions should be placed on countries that purchase the goods manufactured in China, rather than by China itself.
Kirk’s 14 April letter, which was addressed to Republican representatives Joe Barton, Ralph Hall, Greg Walden, and Paul Brown, takes aim at protectionist concerns. The Obama administration would ensure that its energy and climate policies do not violate the country’s international trade obligations, the letter said, noting that the White House would seek to “minimise incentives” for US trading partners to use retaliatory trade measures against US exports.
“Our consideration of the necessity of, and options for, addressing carbon leakage will include how potential measures might be targeted towards the circumstances of energy and trade intensive industries,” the letter reads. “The administration, however, does not support any specific measures, including border measures, at this time.”
Commitment to UNFCCC process re-affirmed
The letter also re-affirms US support for a Copenhagen deal, suggesting that concerns over carbon leakage would be dealt with best through the UN Framework Convention on Climate Change (UNFCCC).
”The Administration believes that the best approach to address concerns with carbon leakage is to negotiate a new international climate change agreement in the United Nations that ensures that all the major emitters take long term, significant action to reduce their greenhouse gas emissions,” Kirk wrote. “We look forward to working with these countries to negotiate a meaningful global climate agreement and actively avoiding circumstances in which we are simply exporting carbon emissions abroad.”
Letter leaves ‘unanswered questions’: Republicans
Responding to the letter, deputy Republican staff director on the Energy and Commerce Committee Larry Neal said that the Kirk epistle “tries to make up in cheery confidence what it lacks in facts.” Neil said the letter leaves many unanswered questions regarding the possibility of other countries taking ‘strategic advantage’ of the higher cost of production US manufacturers would face under the cap-and-trade programme.
The proposed US carbon trading scheme has been controversial. The proposal faces bipartisan opposition and many observers say the bill is unlikely to get approval from Congress if concerns over protecting domestic manufacturing are not addressed.
Additional Information
Ron Kirk’s 14 April letter to Joe Barton can be accessed here: http://ictsd.net/downloads/2009/04/kirk-letter-14-04-09.pdf
ICTSD Reporting, “Obama Wants Climate Bill Mindful Of WTO Rules - Kirk,” REUTERS, 16 April 2009.
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