The Politics of Carbon Leakage and the Fairness of Border Measures
Eckersley, Robyn, Ethics & International Affairs
The 1992 United Nations Framework Convention on Climate Change (UNFCCC) requires developed country parties to adopt policies and measures that demonstrate that they are taking the lead in reducing emissions consistent with the convention's ultimate objective of preventing dangerous climate change. (1) Yet nearly two decades after the signing of the treaty, many developed countries are still struggling to introduce limits on greenhouse gas emissions.
The decision in July 2010 by the Democratic leadership in the U.S. Senate to shelve its latest cap-and-trade bill and focus instead on mustering support for a much narrower energy bill ended months of speculation about whether the Senate would pass legally binding limits on greenhouse gas emissions. The decision will also make it harder for the United States to fulfill the Obama administration's Copenhagen pledge of a 17 percent cut in emissions by 2020 from a 2005 baseline, which already falls well short of scientific recommendations and the international expectations of China, the Group of 77, and the European Union. While the United States is the most significant player in the climate negotiations, other non-European developed countries have also failed to demonstrate climate leadership. The Canadian government is waiting to see what the United States will do, while the Australian Labor government decided in April 2010 to postpone the reintroduction of its national emissions trading scheme until after the August 2010 election. These delays have dampened hopes of a new, legally binding treaty emerging from the next Conference of the Parties, scheduled for Cancun, Mexico, in December 2010. Finding a way forward in the domestic politics of these countries, particularly in the United States, is crucial to the success of these international negotiations.
One of the key arguments raised by political opponents of robust domestic climate legislation in such countries as the United States, Canada, and Australia is that a national cap-and-trade bill will place domestic energy-intensive industries at a competitive disadvantage, and will also lead to the migration of industry, jobs, and emissions to developing countries that do not impose a price on carbon. Opponents have also argued that the migration of emissions, or so-called carbon leakage, to developing countries would defeat the purpose of domestic regulation. For many opponents, these problems are sufficient reason to reject the case for an emissions trading scheme (ETS) and to opt for softer measures that do not impose costs on industry. However, many would-be opponents in the United States have argued that an emissions trading scheme would be acceptable if it included border adjustment measures that effectively raise the price of imports from countries with a lower carbon price and lower the price of exports. This would be done by imposing a carbon tariff on imports (or requiring importers to purchase emission allowances under the domestic emissions trading scheme in the same way as domestic producers), and by allowing export rebates. The intended effect of such measures is to level the economic playing field, protect domestic industry and jobs from cheap imports, and prevent the migration of industry, jobs, and emissions offshore. Such a scheme helped to muster support for the Waxman-Markey Bill, which passed the U.S. House of Representatives on June 26, 2009. A similar scheme was envisaged for the draft Kerry-Lieberman Bill, which was forsaken by the Democrats in the Senate in July 2010.
Carbon equalization measures have appeared in many previous cap-and-trade bills that have been presented to the 110th and 111th Congresses, and they are likely to reappear in future efforts to promote a cap-and-trade scheme in Congress as a means of shoring up domestic political support. Debates over border taxes have also surfaced in the European Union, initially in the form of a "Kyoto tariff' to be applied at the border on imports from non-Kyoto parties (such as the United States) to prevent developed country laggards from gaining a competitive advantage at the expense of the developed country leaders that seek to fulfill their Kyoto obligations. …