Leakage of American demand to other countries could set back some progress made toward answering the challenge of global warming. In order to have the greatest impact on climate change, we should ensure that calculation of emissions consider the entire lifecycle of products, a lifecycle that includes manufacturing and transportation in other countries.

Preventing this leakage is particularly important given the potential of a clean energy bill to recharge our economy and, in the words of Speaker Pelosi on June 26th on the House floor, create “jobs, jobs, jobs, and jobs” for Americans.

Ideally, all countries would take global warming emissions into account as a cost of production. A global agreement is one solution to the problem of uneven emissions standards. It would be a great success if President Obama leaves Copenhagen this fall with an international agreement, and much more likely to happen if the Senate passes a strong cap-and-trade program.

But, until such an agreement takes place, a border tax adjustment should not be off the table. This policy could be the answer. An effective energy bill with a border tax adjustment can provide a level playing field for American businesses and motivate changes internationally.

And such tariffs do not need to be considered punitive; as stated by the President of the United Steel Worker, Leo W. Gerard, in a June 25 letter to the House of Representatives endorsing their recently passed cap-and-trade program, the tariff could acknowledge that “The privilege of being able to sell to the American consumer brings with it the shared responsibility to improve the global environment for future generations.”

Stefanie Feldman, Environment America Global Warming Intern

Nations wishing to make major progress on decreasing greenhouse gas emissions should introduce emission taxes on all products. These taxes should be levied on imports as well as domestic goods at the point of sale, and should displace other taxes, such as VAT, sales taxes, and payroll (e.g. social security, health care) in such a way that tax revenues are constant, and distributed equitably.

These should be introduced as an Emissions Added Levy (avoiding the bad jokes). EAL would be imposed on sale for emissions added in the preceding step and inherent to the consumption of the product, as would be the case for heating oil and gasoline. Manufacturers would pay the EAL on electricity they bought, and incorporate this and the levy on emissions they created into the price of the product they sell.

Imports from countries that do not have an EAL would have the full EAL imposed at the time of import. The base rate would be generic EALs based on worst previous practices in the countries that do have EALs, which would be reduced on presenting proof that the actual emissions were lower.

http://rabett.blogspot.com/ 2007/ 12/ rabetts-simple-plan-for-saving-world-un.html

But when it comes to the BTAs in the Waxman-Markey bill, there is trouble in the fine print. The relevant sections of the Waxman-Markey bill are Sections 765-769 of the bill, especially 767 (c). In my opinion, BTAs should apply if a country is not participating in, or in compliance with, an international agreement.

The provisions in W-M are different, and impose other conditions on countries. While I can see the temptation to do that, I don’t think it will help. The W-M provisions require that countries satisfy one of the following requirements in order to avoid BTAs:

(1) The country is a party to an international agreement to which the United States is a party that includes a nationally enforceable and economy wide greenhouse gas emissions reduction commitment for that country that is at least as stringent as that of the United States.
(2) The country is a party to a multilateral or bilateral emission reduction agreement for that sector to the which the United States is a party.
(3) The country has an annual energy or greenhouse gas intensity, as described in section 763(b)(2)(A)(ii), for the sector that is equal to or less than the energy or greenhouse gas intensity for such industrial sector in the United States in the most recent calendar year for which data are available.

This could imply that India, with per-capita emissions something like 16 times less than the United States, could be subject to BTAs. We should not forget that the Kyoto Protocol is now in force, but the US has not ratified, even though the US negotiated a 7% reduction for the commitment period. If any country should be subject to BTAs, the US (and possibly Canada) would be prime candidates.

That aside (which it should not be!) the devil is in the details. As I consider this I have to wonder whose competitor gets hammered and whose doesn’t—at least when it comes to enforcement; to practice. Do I see a new source of political contributions opening—and more sausage making that has little to do with clean or secure energy, or GHG regulation?

In addition, is the inclusion of tariffs a conflict regarding the stated jurisdictional rational for the legislation (regulating GHG emission from U.S. sources)? Isn’t the conundrum of this legislation (if it isn’t just a jobs bill) that unless the jurisdictional is Constitutional the legislation is flawed, and unless the legislation is framed to cover all the global sources that are the result of what is consumed and/or invested in by United States citizens, it is scientifically ineffective relative to the reported need to reducing CO2 emissions to 1990 levels by 2050? Isn’t what is “legal”—but not rational/sane—that we are free to pursue, with “legal” limited liability (relative to precedents of common law) profit and consumption as we feel is best for us?

BTW, my read of the transcript says words are being put into the President’s mouth that he did not say. Is his phrasing, like his use of language during the campaign relative to “hope” and “change,” such that one can project into it whatever ones feelings say should be there?

Additional “benefits” of border adjustment are:
- the need for a data collection from the producer (you can’t control what you can’t measure… and we want to control GHG emissions, right?)
- an negotiation card which strongly invites countries with heavy industries into “sectoral approaches” in which their own production would face similar constraints
- a uniform price signal and no carbon leakages

As you see the solutions rated from the best to the worst are:
- an even playing field for a certain type of goods with full auctionning of emissions worldwide (e.g. country with caps + sectoral cap for industrial sector in developing countries), OR
- A sectoral agreement worldwide for a specific sector

- a cap in developed countries only with free allocation of emission allowances.
- a cap in developed countries only with full auctionning of the emission allowances (maximum market distortion).

Many industries I worked with have a clear preference for border adjustments in sectors where the number of products or sub-categories of products is limited and the number of plants to survey worldwide for the proper number crunching is also limited.