Mr Peters and his colleagues see no evidence so far that carbon-control policies, weak as they are, are shifting production to less regulated countries. Carbon follows trade patterns set by other factors; it does not shape them. Sterner carbon restrictions, though, might provoke rich-world industrialists to press for tariffs on carbon-intensive imports with which they cannot compete. A more fruitful approach might be to see the trend in terms of the need for greener investment outside the rich world. Spreading low-carbon technologies there matters as much or more than decarbonising developed countries.

• One of the key obstacles to implementing carbon pricing policies in Canada is the concern that energy-intensive and trade exposed (EITE) companies will lose market share to companies located in regions without comparable policies in place, or that these companies will relocate altogether.

• While negative competitiveness impacts are a concern, they must be put in perspective. The sectors truly vulnerable to competitiveness pressures from a Canadian carbon pricing policy represent a small percentage of Canadian GDP. Policy makers must pay careful attention to how vulnerable sectors are identified and design appropriate policy measures to protect those that legitimately require it while still achieving environmental goals. Given that Canada is highly dependent on trade, to avoid any retaliation, it is also important
for Canada to implement a policy that does not have a negative impact on its key trading relationships. Putting in place measures to protect domestic firms cannot lead to explicit disadvantage for foreign industries, if retaliatory trade measures are to be avoided.

• While it is necessary to protect domestic EITE sectors, at the same time these sectors are the ones that most need to decarbonise their production processes. A carbon pricing policy compels these sectors to begin this transition, so while protecting them the incentive to
decrease their carbon intensity must be preserved.

• The long-term transition to lower carbon intensity is the ultimate strategy for ensuring that Canada’s economy remains competitive in a carbon-constrained world.

But what if the Chinese (or the Indians or the Brazilians, etc.) do not want to participate in such a system? Then you need sticks as well as carrots. In particular, you need carbon tariffs.

A carbon tariff would be a tax levied on imported goods proportional to the carbon emitted in the manufacture of those goods. Suppose that China refuses to reduce emissions, while the United States adopts policies that set a price of $100 per ton of carbon emissions. If the United States were to impose such a carbon tariff, any shipment to America of Chinese goods whose production involved emitting a ton of carbon would result in a $100 tax over and above any other duties. Such tariffs, if levied by major players — probably the United States and the European Union — would give noncooperating countries a strong incentive to reconsider their positions.

To the objection that such a policy would be protectionist, a violation of the principles of free trade, one reply is, So? Keeping world markets open is important, but avoiding planetary catastrophe is a lot more important. In any case, however, you can argue that carbon tariffs are well within the rules of normal trade relations. As long as the tariff imposed on the carbon content of imports is comparable to the cost of domestic carbon licenses, the effect is to charge your own consumers a price that reflects the carbon emitted in what they buy, no matter where it is produced. That should be legal under international-trading rules. In fact, even the World Trade Organization, which is charged with policing trade policies, has published a study suggesting that carbon tariffs would pass muster.”

By Pete Harrison

BRUSSELS (Reuters) – The European Union has yielded to Canadian demands it remove possible trade barriers to polluting oil sands to avoid further damage to ties, according to sources and leaked documents.

Relations are already strained after the European Union banned imports of seal products last July on animal welfare grounds, a move Canada is challenging at the World Trade Organization.

Canada warns that draft EU standards to promote greener fuels are too unwieldy and will harm the market for its oil sands — tar-like oil that is trapped in sediment and forms the world’s second-largest proven crude reserves after Saudi Arabia.

“Such a system would be extremely difficult to implement and monitor, and would in itself create barriers to trade,” Canadian Ambassador Ross Hornby told a top official at the European Union’s executive in a letter seen by Reuters.

Mar 9th 2010 | From The Economist online

ON MARCH 4th The Economist ran a story about the challenges facing scientists who are trying to find out which greenhouse gases come from where. On March 8th a paper published in the Proceedings of the National Academy of Sciences by Steve Davis and Ken Caldeira of the Carnegie Institution’s campus at Stanford University brought to the fore a further problem in trying to figure out who emits what—one that turns not on how carbon flows through the atmosphere and biosphere, but on how it flows through the world economy. Who should be held responsible for the greenhouse-gas emissions involved in making, say, a flat-screen television? The country where the television is made? Or the country where it ends up being used?

Looking at the carbon emissions associated with a country’s consumption, rather than its production, does not change the general outline of what is going on in the world: rich people still emit more carbon dioxide than poor people do. But it does heighten the contrast. Rich countries which import manufactured goods from poorer ones end up with even higher emissions; poor countries that export a lot of manufactured goods with lower ones. Using figures from 2004, the most up to date that have the sort of industry-specific data they need, Dr Davis and Dr Caldeira reveal the striking scale of this effect. They find that roughly a quarter of the world’s emissions end up being consumed somewhere other than where they are produced. For a few small and reasonably post-industrial countries, such as Switzerland, the emissions associated with total consumption (emissions produced in Switzerland minus those associated with goods produced there and subsequently exported plus those associated with goods imported) are more than twice the emissions actually produced on Swiss territory.

Nov 19th 2009
From The Economist print edition
The tension between free trade and capping emissions

…

Just as bananas are best grown in warmer places, imposing a higher carbon price does not compel German manufacturers of capital goods to decamp to China. Also, the increased output of some energy-intensive goods in poorer countries draws some productive resources away from other industries there. Overall, the authors find that if Europe and America were to reduce emissions by 17% from their 2005 levels by 2020, the additional increase in developing-country emissions would be only 1%. Global emissions would still be almost 10% lower than if nothing had been done. So rising global emissions due to carbon leakage are hardly as big a worry as some make them out to be.

That has not stopped many from proposing taxes that would penalise exports from countries that benefit from low carbon prices. From the point of view of countries with stricter environmental rules, it is easy to see why. According to the study, to reduce its emissions by 17% America would have to cut its exports of energy-intensive goods, such as steel, by 12% and its production of such goods by 4%. Domestic producers of energy-intensive goods, on whom much of the burden of adjustment will fall, will demand some form of compensation or protection. No wonder the climate bill passed by the House of Representatives in America has a provision for taxing imports from countries that have laxer rules on emissions. Nicolas Sarkozy, France’s president, has proposed that Europe adopt a similar strategy, arguing that not to do so would amount to “massive aid to relocations”.

By Economist.com | WASHINGTON

PAUL KRUGMAN doesn’t seem to be paying attention to the arguments opponents of carbon tariffs are actually making. It’s much easier, I guess, to make up an opposing view to debate against. He writes:

“So the economics are right; it’s WTO-legal; and it would neutralize a major political argument against controlling greenhouse gases. Why, oh, why, would Obama say “Ni”?”

Mr Krugman seems to be suggesting that Mr Obama is just an idiot for not seeing the obvious. But as I’ve argued before, non-idiots who are actually concerned about climate change recognise that an American climate law cannot do much about warming on its own. It is most valuable, rather, as a means to facilitate a meaningful global agreement on emission reductions. And so if Mr Obama dislikes the idea of carbon tariffs, it may be because he thinks that carbon tariffs are likely to be counterproductive to this goal. He may think that China and India will respond to carbon tariffs as countries frequently respond to trade restrictions,by retaliating or otherwise becoming indignant.

By Alan Beattie and Fiona Harvey in London

Published: June 29 2009 03:00 | Last updated: June 29 2009 03:00

Cap-and-trade legislation passed by the House of Representatives late on Friday will make it easier for the US to impose import tariffs against countries that do not control their own carbon emissions.

Passage of the bill – it is likely to face an even tougher fight in the Senate – was welcomed by environmental groups and some sections of business, but others warned the so-called “border tax adjustment” provisions could aggravate tensions with the US’s trading partners.

Such border measures – intended to level the playing field by equalising carbon emission charges between domestic production and imports – might be permitted by World Trade Organisation rules, according to a report published last week by the WTO and the United Nations.

But judicial rulings on similar disputes made in the past by WTO arbitration panels leave considerable doubt. Countries such as China complain the measures can act as a form of backdoor protectionism.

Provisions added to the House bill at a late stage would automatically impose such border measures on imports in 2020 unless both the White House and Congress were to agree to waive them. “[That] automatically sets the switch for border measures to ‘on’ and makes it harder to turn it off,” said Jacob Werksman, programme director at the World Resources Institute.