Graham-Kerry Initiative Boosts Climate Legislation — But Repeats Threat to Trade

October 13, 2009

In a surprise New York Times op-ed last weekend, Senators Lindsey Graham (R-SC) and John Kerry (D-MA) announced a joint initiative on climate change.

The proposal mixes the good (I am glad it finally spells out that only carbon capture and storage turns coal into “clean coal”) with the bad. Still, it is welcome news that the Senate may finally be able to “count to sixty” and pass some kind of legislation to reduce emissions.

Yet, anyone who agrees that market access is essential for developing countries, and who knows how hard-won progress on trade has been, should worry that Graham and Kerry also call for trade sanctions against countries perceived as doing less on climate change than the United States.

They argue that,

There is no reason we should surrender our marketplace to countries that do not accept environmental standards. For this reason, we should consider a border tax on items produced in countries that avoid these standards. This is consistent with our obligations under the World Trade Organization and creates strong incentives for other countries to adopt tough environmental protections.

First off, any mention of border taxes should be followed by “… but not against least-developed countries.” (I am sure Senators Graham and Kerry do not favor punitive tariffs on Haiti and Burkina.)

Second, it is understandable that the senators worry about damage to U.S. industry, although Project Catalyst and many others find little evidence that climate legislation damages competitiveness. They rightly point out that, despite the great long-term benefits of climate action, some people will bear real immediate cost. I agree it is important to distribute this burden fairly — within the United States.

Yet, this cannot involve shifting the burden to developing countries. Nancy Birdsall and I will discuss the pitfalls of border measures more broadly in a forthcoming paper. In short, we argue that they are ethically objectionable because they amount to reserving the right to unilaterally change whatever burden-sharing deal is agreed in Copenhagen. This is, mildly put, not a cooperative approach, and bound to undermine trust in the negotiations.

From a practical standpoint, climate-related tariffs are perilous because countries are unlikely to agree how various sets of national regulations compare in strictness. Climate legislation is complex, and will offer ample scope for disagreement: witness the 1427-page Waxman-Markey and ‘slim’ 821-page Boxer-Kerry bills. Disagreements about whether border taxes are appropriate raises the risk of retaliatory tariffs and protracted WTO litigation.

Imagine, for example, if Europe argued that its 30% reduction commitment below 1990 levels is far steeper than the U.S. (Boxer-Kerry) target of 7%, and imposed a commensurate tariff. Do we believe the United States would accept the measure? Imagine that the United States imposed a tariff on Indian steel. Do we believe India would accept it, given that India annually emits just 1.7 tons of CO2 equivalent per capita (in 2005), compared to the United States’ 24 tons?

Border taxes based on supposed differences in climate policies are a bad idea—and a serious threat to development as well as to a workable climate agreement. Senators Graham and Kerry should rethink this and exclude it from their proposed legislation.

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1. Christine Zarzicki Says:
   October 15th, 2009 at 11:14 am

   I completely agree that these selective border taxes are a terrible idea. First of all, in least developed countries the technology to mass-produce competitive commodities is hardly there, let alone the technology to produce them at the proper environmental standards. In order for these countries to compete in the global marketplace it is essential that restrictions (such as tariffs and border taxes) be eliminated so that they may gain momentum and grow economically. How can the world expect these underdeveloped countries to afford and sustain appropriate technologies aimed at environmental protection, when they cannot even find their niche in the global market?
   I think that these border taxes and penalty tariffs should only be enforced in situations where countries are at a level of mass productive and are competing at the global level. This gives the least developed countries the opportunity to grow without any more obstacles in their way. And honestly, how high can the emissions from these tiny undeveloped economies be anyway? Their environmentally degrading discharge is most likely fractions of fractions of what the United States emits annually.
   I understand the imminent nature of climate change. But lets be serious, do we really believe that changing the standards of Malawi is going to save the planet? Lets allow these countries to grow before we blame them for the damage done to our environment. The global superpowers should be the ones responsible for this problem, not those nations just trying to survive.

2. Christopher Smith Says:
   October 18th, 2009 at 8:59 pm

   I believe that the border taxes and climate change tariffs in the Graham-Kerry initiative are squarely aimed at China foremost and India secondarily. The main reason that the US did not sign on to Kyoto Protocol is because the agreement excepted developing states, including China from curbing greenhouse gas emissions. There is no way the US is going to accept the economic pain that investing in clean emissions technology will mean when China is bringing another dirty coal-burning power plant every week. I do not think this provision in the Graham-Kerry initiative targets smaller developing states like Malawi even though they are clearly unintended victims. It seems similar to WTO disputes between large states like the US and small ones like Malawi say. The US can violate trade agreement with small states because the penalty for violating a trade deal under the WTO is a subsequent equalizing tariff. This tariff is so small to the overall US trade that it is insignificant and does not hurt the US at all. But, back to the point, Graham and Kerry are saying that if the US is going to pay for emissions reduction then China will also or face these increased tariff consequences.

3. Mian Akbar Hussein Says:
   October 21st, 2009 at 10:40 am

   I think US need to take more responsibility in world affairs as well as implementing treaty and agreements. As a world leader if US do not implement climate treaty, how can it pressurise other nations to implement. Senator Graham and Senator Kerry’s efforts are appreciated and US government should adopt their recommendations.

4. Dan Longworth Says:
   October 23rd, 2009 at 1:46 pm

   Forget about “Carbon Sequestration.” It will never work.

   Focus on “recycling the emissions,” which would “use” the “waste or reusable heat,” turn that into “Green Power” by using the wasted BTU’s, thereby lowering the temperature of the flue gas, forcing the metals to “drop out’ by specific gravity. Simple, no? Patented? Yes.

   “Business as Usual?” “You betcha!”

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