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The Politics of Carbon Leakage and the Fairness of Border Measures

Published online by Cambridge University Press:  14 April 2011

Robyn Eckersley
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Extract

The article critically examines domestic political concerns about the competitive disadvantages and possible carbon leakage arising from the introduction of domestic emission trading legislation and the fairness of applying carbon equalization measures at the border as a response to these concerns. I argue that the border adjustment measures proposed in the emissions trading bills that have been presented to Congress amount to an evasion of the U.S.'s leadership responsibilities under the United Nations Framework Convention on Climate Change (UNFCCC). I also show how the “level commercial playing field” justification for border measures that has dominated U.S. domestic debates is narrow and lopsided because it focuses only on the competitive disadvantages and direct carbon leakage that may flow from climate regulation while ignoring general shifts in the production and consumption of emissions in the global economy, which have enabled the outsourcing of emission to developing countries. The UNFCC production-based method of emissions accounting enables Northern consumers to enjoy the benefit of cheaper imports from Southern producers and to attribute the emissions associated with this consumption to the South. I argue that it is possible to design fair border measures that address carbon leakage, are consistent with the leadership responsibilities of developed countries, do not penalize developing countries, and ensure that consumers take some responsibility for the emissions outsourced to developing countries.

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Ethics & International Affairs , Volume 24 , Issue 4 , Winter 2010 , pp. 367 - 393
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Copyright © Carnegie Council for Ethics in International Affairs 2010

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References

Notes

1 United Nations Framework Convention on Climate Change (hereafter UNFCCC), arts. 3(1) and 4(2)(a).

2 See, e.g., Peter Wooders, Aaron Cosbey, and John Stephenson, “Border Carbon Adjustment and Free Allowances: Responding to Competitiveness and Leakage Concerns” (paper presented at the Round Table on Sustainable Development, OECD, Singapore, July 23, 2009 [SG/SD/RT(2009)8]), pp. 9–12.

3 Davis, Steven and Caldeira, Ken, “Consumption-Based Accounting of CO2 Emissions,” PNAS 107, no. 12 (March 23, 2010), pp. 5687–92.CrossRefGoogle Scholar

4 See, e.g., Peters, Glen P., “From Production-based to Consumption-based National Emissions Inventories,” Ecological Economics 65, no. 1 (2008), pp. 13–23.CrossRefGoogle Scholar

5 Peters, Glen P. and Hertwich, Edgar G., “CO2 Embodied in International Trade with Implications for Global Climate Policy,” Environmental Science and Technology 42, no. 5 (2008), pp. 1401–07.CrossRefGoogle Scholar

6 van Asselt, Harro and Brewer, Thomas, “Addressing Competitiveness and Leakage Concerns in Climate Policy: An Analysis of Border Adjustment Measures in the US and the EU,” Energy Policy 38 (2010), pp. 42–51.CrossRefGoogle Scholar

7 This group is made up of the United States, Canada, Australia, New Zealand, Japan, Norway, Iceland, Russia, and Ukraine. Only Norway and Japan have pledged unconditional 2020 targets exceeding minus 20 percent from a 1990 baseline.

8 Sijm, J. P. M., Neuhoff, Kartsen, and Chen, Yihsu, “CO2 Cost Pass Through and Windfall Profits in the Power Sector,” Climate Policy 6, no. 1 (2006), pp. 49–72CrossRefGoogle Scholar.

9 Norway committed to an unconditional 2020 target of minus 30 percent (rising to minus 40 percent if certain conditions were met), while Japan committed to minus 25 percent.

10 Daley, John and Edis, Tristan, “Restructuring the Australian Economy to Emit Less Carbon: Main Report,” Melbourne Grattan Institute, April 2010.Google Scholar

11 Helms, Jesse (R-NC), “Global Climate Change,” Congressional Record-Senate S11490, September 27, 1996 (Washington, D.C.: U.S. Government Printing Office, 1996), p. 11490.Google Scholar

12 U.S. Senate, Byrd-Hagel Resolution, 105th Congress, First Session; S. Res. 98, Sponsored by Senator Robert Byrd (D-WV) and Senator Chuck Hagel (R-NE), July 25, 1997; available at www.nationalcenter.org/KyotoSenate.html.

13 Harris, Paul G., “Common but Differentiated Responsibility: The Kyoto Protocol and United States Policy,” Environmental Law Journal 7 (1999), pp. 27–48.Google Scholar

14 The Rudd Labor government in Australia ratified the Kyoto Protocol in November 2007.

15 H.R. 2454: American Clean Energy and Security Act of 2009 (Waxman-Markey Bill), sec. 766.

16 Exemptions are also provided for importers from least-developed countries, or from countries with emissions below a minimum threshold of 0.5 percent of global emissions and less than 5 percent of imports.

17 International Centre for Trade and Sustainable Development (hereafter ICTSD), “Obama Criticizes Border Tax Adjustments in House Climate Bill,” Bridges Weekly Trade News Digest 13, no. 24 (July 1, 2009); available at ictsd.net/i/news/bridgesweekly/49962/.

18 Kate Sheppard, “10 Dems Call on Obama Admin to Support Trade Protections in a Climate Bill,” Grist (August 6, 2009); available at www.grist.org/article/2009-08-06-10-dems-call-on-obama-admin-trade-protections (accessed March 11, 2010).

19 Fred C. Bergsten and Lori Wallach, “Cooling the Planet without Chilling Trade,” Washington Post, November 13, 2009; available at www.washingtonpost.com/wp-dyn/content/article/2009/11/12/AR2009111209923.html?sid=ST2009111209956.

20 See, e.g., “France to Renew Call for EU Carbon Tariff,” EurActive Network (March 1, 2010); available at www.euractiv.com/en/climate-environment/france-renew-calls-eu-carbon-tariff-news-290621.

21 See Houser, Trevor et al. , Leveling the Carbon Playing Field: International Competition and US Climate Policy Design (Washington, D.C.: World Resources Institute and Peterson Institute for International Economics, 2008), chap. 3.Google Scholar

22 Ibid., p. 53.

23 Hufbauer, Gary C., Charnowitz, Steve, and Kim, Jisun, Global Warming and the World Trading System (Washington, D.C.: Peterson Institute for International Economics, 2009), p. 13.Google Scholar

24 Ibid.

25 “Merkel Urges EU Leaders to Act on ‘Carbon Leakage,”’ EurActiv Network (March 13, 2010); available at www.euractiv.com/en/trade/merkel-urges-eu-leaders-act-carbon-leakage/article-170944; and European Parliament, Resolution on “Winning the Battle Against Global Climate Change” (2005/2049[IN]); available at ec.europa.eu/environment/climat/pdf/ep_resolution_clim_change.pdf. Joseph Stiglitz had also called for carbon tariffs against the United States, given its repudiation of the Kyoto Protocol (Center for Global Development, 2006).

26 John Stephenson and Simon Upton, “Competitiveness, Leakage, and Border Adjustment: Climate Policy Distractions?” (paper prepared for the Round Table on Sustainable Development, OECD, Singapore, July 22–23, 2009 [SG/SD/RT(2009)3]), pp. 11–13.

27 Ibid., p. 13.

28 Julia Reinaud, Issues Behind Competitiveness and Carbon Leakage (OECD/IEA Information Paper, October 2008).

29 Joseph E. Aldy and William A. Pizer, “The Competitiveness Impacts of Climate Mitigation Policies” (Pew Center on Global Climate Change, May 2009); available at www.pewclimate.org/docUploads/competitiveness-impacts-report.pdf.

30 Aaron Cosbey, “Border Carbon Adjustment” (Background Paper for Trade and Climate Change Seminar, Copenhagen, June 18–20, 2008), p. 5.

31 For a detailed discussion of the implications of the requirement of “comparability” and the meaning of “equitable” for WTO law, see Jacob Werksman, James A. Bradbury, and Lutz Weischer, “Trade Measures and Climate Change Policy: Searching for Common Ground on an Uneven Playing Field” (WRI Working Paper, World Resources Institute, Washington, D.C., 2009).

32 See Gavin Goh, “The World Trade Organization, Kyoto and Energy Tax Adjustments at the Border,” Journal of World Trade 38, no. 3 (2004), pp. 395–423; Werksman et al., “Trade Measures and Climate Change Policy”; and World Trade Organization and United Nations Environmental Program, Trade and Climate Change: WTO-UNEP Report (Geneva: WTO, 2009).

33 UNFCCC, art. 3(5).

34 ICTSD, “India Threatens WTO Case Against Proposed ‘Carbon Border Taxes,”’ Bridges Weekly Trade News Digest 14, no. 12 (March 31, 2010); available at ictsd.org/i/news/bridgesweekly/73378/.

35 ICTSD, “China, India Lash Out at Talk of ‘Carbon Tariffs',” Bridges Weekly Trade New Digest 13, no. 25 (July 8, 2009); available at ictsd.org/i/news/bridgesweekly/50301/.

36 OECD, Joint Working Party on Trade and Environment, “The Polluter Pays Principle as It Relates to International Trade,” COM/ENV/TD(2001)44/FINAL, December 23, 2002, pp. 16–17.

37 Ross Garnaut, Garnaut Climate Change Review: Final Report (Cambridge: Cambridge University Press, 2008), p. 231; available at www.garnautreview.org.au/; see also Houser et al., Leveling the Carbon Playing Field.

38 I am grateful to John Daley, the CEO of the Grattan Institute, for drawing my attention to this distinction.

39 Garnaut, Garnaut Climate Change Review, p. 231, quoting J. Schmidt, et al., “Sector-Based Approach to the Post-2012 Climate Change Policy Architecture” (Future Actions Dialogue Working Paper, Center for Clean Air Policy, Washington, D.C., 2006).

40 Reinaud, Issues Behind Competitiveness and Carbon Leakage, p. 17.

41 Dana R. Fisher, “Bringing the Material Back In: Understanding the U.S. Position on Climate Change,” Sociological Forum 2, no. 13 (2006), p. 480.

42 Hufbauer et al., Global Warming and the World Trading System, p. 3.

43 UNFCCC, Preamble.

44 See, e.g., Najam, Adil, “The View from the South: Developing Countries in Global Environmental Politics,” in Axelrod, Regina S., Downie, David Leonard and Vig, Norman J., eds., The Global Environment: Institutions, Law and Policy (Washington, D.C.: CQ Press, 2005), pp. 225–43.Google Scholar

45 Ruggie, John G., “Multilateralism: The Anatomy of an Institution,” International Organization 46, no. 3 (1992), p. 571.CrossRefGoogle Scholar

46 As noted above, the Waxman-Markey Bill only makes exception for the least-developed countries and countries with minimal emissions.

47 Werksman et al., “Trade Measures and Climate Change Policy,” pp. 8–9.

48 Biermann, Frank and Brohm, Rainer, “Implementing the Kyoto Protocol without the United States: The Strategic Role of Energy Tax Adjustments at the Border,” Climate Policy 4, no. 3 (2005), p. 291CrossRefGoogle Scholar. According to Biermann and Brohm, the problem of carbon leakage to developing countries should be addressed through other means, such as financial and technological assistance to developing countries.

49 The measure would be found to be discriminatory, so WTO compatibility would turn on whether it could be defended under Article 20 of the GATT. This is more likely if the measures are explicitly supported by a multilateral environmental treaty.

50 Peters and Hertwich, “CO2 Embodied in International Trade with Implications for Global Climate Policy”; and Peters, “From Production-based to Consumption-based National Emissions Inventories.”

51 Roberts, J. Timmons and Parks, Bradley C., A Climate of Injustice: Global Inequality, North-South Politics, and Climate Policy (Cambridge, Mass.: The MIT Press, 2007), p. 161.Google Scholar

52 For a recent review, see Rice, James, “Ecological Unequal Exchange: Consumption, Equity, and Unsustainable Structural Relationships within the Global Economy,” International Journal of Comparative Sociology 48, no. 1 (2007), pp. 43–72.CrossRefGoogle Scholar

53 Peters, “From Production-based to Consumption-based National Emissions Inventories,” p. 21.

54 Ibid.

55 Davis and Caldeira, “Consumption-Based Accounting of CO2 Emissions.” See also Stockholm Environment Institute, University of Sydney, and Department for Environment, Food and Rural Affairs, Development of an Embedded Carbon Emissions Indicator (London: Department for Environment, Food and Rural Affairs, 2008), esp. pp. 24–26.

56 Stefan Bringezu and Helmut Schütz, Material Use Indicators for the European Union, 1980–1997: Economy Wide Material Flow Accounts and Balanced and Derived Indicators of Resource Use (EUROSTAT Working Paper No. 2/2001/B/2, Wuppertal, Germany: Wuppertal Institute, 2001).

57 The distinction between luxury and subsistence emissions was coined by Henry Shue in “Subsistence Emissions and Luxury Emissions,” Law and Policy 15, no. 1 (1993), pp. 39–59.Google Scholar

58 Hufbauer, et al. , Global Warming and the World Trading System, chap. 4.Google Scholar

59 For a creative discussion on amending the annexes to the Kyoto Protocol, see Peter Christoff, “Post-Kyoto? Post-Bush?: Towards an Effective ‘Climate Coalition of the Willing,”’ International Affairs 82, no. 5 (2006), esp. pp. 851–54.

60 Whether a carbon tax is applied at the border, at the point of production, or at the point of final consumption, in the end the consumer will pay, although this will also turn on the elasticity of demand for the product.

61 I wish to acknowledge Peter Christoff, who first came up with the idea of recycling the revenue from border measures.

62 I am grateful to Carolyn Fischer from Resources for the Future for pointing out this option.

63 ZhongXiang Zhang, “The U.S. Proposed Carbon Tariffs, WTO Scrutiny and China's Response” (East-West Center Working Papers, Economic Series, No. 106, December 2009), p. 27. According to Houser et al., China's export taxes were valued at US$50 per ton of carbon. Houser et al., Leveling the Carbon Playing Field, p. 70. This is much higher than the near- or medium-term carbon price expected to flow from any of the bills that have been presented to Congress.