October 19, 2009
In recent years several politicians have proposed the use of border measures or border tax adjustments in case of disagreement over measures to protect the climate. The latest suggestion can be found in a joint letter by French President Nicolas Sarkozy and German Chancellor Angela Merkel to UN Secretary-General Ban Ki-Moon.
The principal justification for such measures is the phenomenon of ‘carbon leakage’. If domestic measures to protect the climate impose too heavy a burden on the domestic industry, the latter could be tempted to migrate to countries with less strict climate control policies. The proposals seem to result in a win-win situation: both the climate and the competitiveness of the domestic industry are protected. They should nevertheless be rejected as a new form of protectionism.
An agreement in Copenhagen will not eliminate the phenomenon of carbon leakage, it will perpetuate it.
If an agreement is reached in Copenhagen it will be based on the principle established by the UNFCCC of common but differentiated responsibilities, in other words different countries will undertake different commitments. The commitments of industrialised countries will be higher than those of the emerging countries and those of the developing world. Thus, the agreement will perpetuate the notion of ‘carbon leakage’.
Given the industrialised nations’ responsibility for climate change the principle of common but differentiated responsibilities is justified. Thus, border measures will play no role after a successful conclusion in Copenhagen, yet carbon leakage will not be eliminated.
If no agreement is found a trade war could loom and those who suggest border measures bear the responsibility for this.
The most likely reason for a failure in Copenhagen will be a disagreement on the commitments to be undertaken by industrialised and emerging countries. If, as a consequence of a failure, the European Union were to impose border measures against ‘climate sinners’ it would probably start a trade war with huge and damaging consequences for European business, since the target countries for the measures would most likely be the EU’s biggest trading partners, i.e. the United States and/or China.
At that point in time the threats of border measures will undergo a reality test. A trade war between the EU with either China or the United States is simply unrealistic since the EU, as the biggest export entity of the world, will not throw the first stone.
Border measures will provoke retaliation and protracted WTO litigation
The European Union has adopted several legislative acts to combat climate change, i.e. its emissions trading scheme, and is discussing an adjustment of the Energy Taxation Directive. These instruments are based on caps of CO2 emissions for installations or a tax on energy consumption: they do not relate to products as such. Any border measures would, however, have to translate the domestic requirements into a justifiable measure on products with all the administrative difficulties this could entail. The target countries will seek clarification in the WTO on whether such measures are WTO-compatible. Such litigation would most probably only see losers and no winners.
Other countries could also adopt border measures in the context of their climate change legislation, based on different considerations than the EU.
Suppose an emerging country with low per capita CO2 emissions bases its climate policies on a containment of per capita emissions and adopts border measures on this basis. Under such a system, all exports both from the United States and the European Union would probably be subject to such measures since the per capita CO2 emissions in the EU and the US are much higher than in the emerging country concerned. Would Europe be happy with such a measure?
Border measures will not reduce CO2 emissions but will increase domestic budgets
Border measures have no environmental impact in the exporting country. The products will continue to be produced in that country and will, if not exported to the country taking the trade measure, be sold at the world market. Border measures do however have a positive impact on the budget of the importing country.
Unilateral domestic climate actions coupled with border measures will not save the planet, yet could trigger a dangerous trade war. Such measures are nothing but a new form of protectionism and should therefore be rejected.
Climate change is a global problem which should be addressed at a global level, preferably in Copenhagen. At a national or European level, issues such as free allocation of certificates, compensation for the indirect effects of ETS for energy-intensive industries or benchmarks will be much more effective to retain the competitiveness of European business than border measures.
Prof. Reinhard QuickLetters to the EurActiv editor