Talk of Carbon Tariff Upsets China and Worries Climate Experts

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One day after China’s top climate official, Li Gao, requested that his country’s export sector be exempt from greenhouse gas emissions reductions, U.S. Energy Secretary Steven Chu announced the possibility of levying a carbon tariff on countries that do not match U.S. emissions restrictions.

Chu told a House science panel that such border tax adjustments could "level the playing field”.

That statement heard ’round the Beltway signaled a growing uneasiness among politicians that the costs imposed by future climate change laws could put U.S. businesses at a competitive disadvantage and send energy-intensive industries fleeing the United States for countries that don’t have similar restrictions.

The implications both worry climate experts and raise the specter of a trade war, a fear that U.S. officials meeting with their international counterparts in Europe this week have been trying to diffuse.

Climate scientists fear that uncoordinated greenhouse gas reduction efforts will result in carbon leakage – the increase in greenhouse gas emissions in one country as a result of a decrease in another – which would simply redistribute rather than reduce climate changing emissions.

In politics, however, economics is a powerful motivator.

Playing to Win

Immediately after Chu’s statement, China’s head climate change and coordinating committee member, Xie Zhenhua, flatly rejected the U.S. energy secretary’s suggestion as "an excuse to impose trade restrictions."

China’s state-run media followed by accusing the U.S. of protectionism. Chinese officials emphasized the measures they were taking to fight climate change, and they reiterated their conviction that the U.S. and other developed countries that consume Chinese exports are responsible for emissions attached to those goods.

The Chinese were not alone in their dissent. Free trade-oriented organizations in the U.S., such as the Heritage Foundation, warned that a carbon tariff on carbon-intensive imports would provoke a trade war and contravene World Trade Organization (WTO) rules.

Among U.S. industries, the response was mixed.

The U.S. steel lobby called for sanctions against their Chinese rivals, reinvigorating a long-standing political economy debate over international conditions affecting U.S. steel competitiveness. Senior Vice President of U.S. Steel Corp. Terry Straub was among industry representatives who voiced support for a carbon tariff.

The Alliance for American Manufacturing, which in the past has accused China of unfair trade measures to protect its steel and other industries, issued a report released last week that took China to task on weak enforcement of environmental regulations and a domestic steel industry that requires as much as twice the carbon per ton of steel as U.S. counterparts. Though the report’s tone was one of disapproval, it stopped short of calling for import tariffs.

Taking a more constructive approach, the AAM instead called on the federal government, U.S. engineers and industry leaders to help China develop low-carbon techniques.

Finding Common Ground

This week, Washington officials in Bonn for UN climate change talks and at the G20 summit in London tried to diffuse the escalating tension.

U.S. deputy special envoy for climate change Jonathan Pershing assured participants at the UN meeting that the U.S. would not slide toward protectionism:

"We are looking to improve efficiency, we’re looking to improve technology, we’re looking to reduce greenhouse gas emissions. This does not in our minds constitute a protectionist strategy."

The American and Chinese leaders also met, each polished and engaging in demeanor. China’s Hu Jintao invited U.S. President Obama to visit China later in the year, an invitation the U.S. president accepted. Obama also reiterated U.S. “support for open markets” during a speech to the G20.

The latest developments, staged on neutral territory, suggest there is still room for China and the U.S. – recently dubbed the G2 for the critical role their partnership will play in the pursuit of economic recovery – to find mutually agreeable terms for both finance and climate negotiations.

However, Copenhagen is still eight months away, and additional hazards could still surface.

Indeed, China’s climate negotiator Su Wei pointed towards potential roadblocks – and conveyed China’s increasingly tough line – when he told colleagues in Bonn that import fees “would very much have the danger of triggering a trade war”.