Waxman-Markey & a Carbon Tariff

[August1991]

This is not a new issue but with Copenhagen and global warming in the news, it is appropriate.

The Alberta government is worried about a provision in a U.S. climate change bill that would grant the president the power to slap tariffs on imports that have a carbon footprint larger than American-made goods.

In a recent interview with the Calgary Herald, Premier Ed Stelmach said the province is keeping close watch on the Clean Energy and Security Act, also known as the Waxman-Markey bill.

The proposed legislation was narrowly passed in June by the U.S. House of Representatives but it hasn't received full airing in the Senate.

Calgary Herald 14 Aug 2009

The Senate Bill is known as Kerry-Boxer and it doesn't (now) have the same tariff provisions as Waxman Markey.

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The point here is that whatever anyone in Canada thinks about global warming, if Obama decides to push this issue forward, given current thinking in Congress, the Canadian economy is going to take a hit. Moreover, a US carbon tariff on imports would combine domestic protectionist sentiment with the environmental lobby in an unholy alliance.

Imagine the field day that Washington State lumbermen could have claiming that Canada's lumber industry removes oxygen from the planet's atmosphere.

I think the Harper government has three possible options (not mutually exclusive):

One. Work to undercut the passage of Kerry-Boxer and ensure that Waxman-Markey is changed once it gets to the Senate. IOW, encourage American federal politicians to question the rationale of this legislation.

Two. Somehow include Canada within the US environmental umbrella and hence obtain an exemption. This is what Trudeau did in 1971 when Nixon imposed an import surtax. This is also what Mulroney did with the US FTA. Pearson's auto pact is another example.

Three. Meet the basic requirements of CO2 control so that at least we are not naked if faced with a US protectionist onslaught.

Edited December 17, 2009 by August1991

[Riverwind]

The Senate Bill is known as Kerry-Boxer and it doesn't (now) have the same tariff provisions as Waxman Markey.

Environmental tariffs are illegal under existing trade agreements. That will not change unless the US signs a new treaty that allows for such border adjustments. Of course the US could decide to start ripping up trade agreements but that is seperate issue.

It is worth noting that softwood lumber was specifically excluded from NAFTA so it is not a good example of how tarrifs would be viewed by the trade arbitration panels.

[August1991]

Environmental tariffs are illegal under existing trade agreements.

Not acccording to Paul Krugman:

Testimony on the issue from a real trade lawyer (thanks to Richard Baldwin, who pointed me to this document). The bottom line:

In sum, if carefully calibrated along the lines suggested above, carbon equalization measures at the border, imposed on certain imports, can be modeled in compliance with WTO non-discrimination rules and/or the WTOs environmental exception.

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

NYT Edited December 19, 2009 by August1991

[Riverwind]

Not acccording to Paul Krugman:NYT

A lot depends on the politics with the WTO and if there is no global emissions deal you can bet that carbon tariffs would be stringly opposed by the developing world. In any case, I think the chances of a US law that was "carefully calibrated" is next to zero. Any such tariffs levied would be arbitrary and driven by lobby groups so the would not even be able to meet the vague criteria set out the Krugman piece.

[August1991]

A lot depends on the politics with the WTO and if there is no global emissions deal you can bet that carbon tariffs would be stringly opposed by the developing world.

Riverwind, in your intellectual world "of what can be", your post may make sense.

In the real world of a politician seeking votes in a democracy, your post makes no sense.

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Are voters short-sighted? Voters who have children must think about the future - otherwise, why bother?

I am fearful of voters today who have no children.

[Riverwind]

In the real world of a politician seeking votes in a democracy, your post makes no sense.

Politicians will do whatever they want but organizations like the WTO are designed to put constraints on what politicians can do or at least ensure there are consequences if politicians choose vote getting policies that harm international trade.

There have been a number of instances where retaliatory trade sanctions have been designed to target politically influential groups within the US in order to create domestic opposition to anti-free trade policies.

Edited December 24, 2009 by Riverwind