No right to impose carbon tariffs

No right to impose carbon tariffs

Horner op-ed in the National Post (Canada)
April 16, 2008

A new argument has emerged among policymakers, economists and trade
activists seeking regulatory or direct taxes on Canadians in the name of
"global warming." The idea is that Canada
could impose trade sanctions or carbon tariffs on countries that don't follow Canada's plans
to impose carbon taxes or rationing ("cap and trade"). Specifically,
this new call is for the state to devise some scheme for taxing the embedded
greenhouse gases (GHGs), or in effect the energy, in certain imports, and apply
it in the form of tariffs or border adjustments on goods from countries whose
own actions do not rise to Canadian satisfaction.

Recent examples of this "border adjustment" thinking have gained
public attention following the work of CIBC World Markets economists, led by
Jeff Rubin, and by Thomas Courchene, writing for the Institute for Research on
Public Policy in Montreal.

Canada
did, after all, ratify a treaty saying that it would do such things. Other
terms of the "climate" pacts, however, reveal there is no merit to
these increasingly popular tariff notions. All are premised either indirectly
or aggressively on the idea that, in the lofty rhetoric of CIBC's Mr. Rubin,
"tolerance of the carbon practices of its trading partners will diminish
rapidly" among Canadians for countries that do not comply with whatever Canada comes up
with.

But herein lies the problem. The same pact by which Canada vowed to
shackle its own economy with such measures also quite plainly recognizes that
more than 150 countries have no such burden. These include Canadian trading
partners China, India, Mexico,
Brazil, South Korea, Indonesia, and other top emitters
in the developing world. TheUnitedStates, whichdespiteconventional wisdom did
sign Kyoto but
whose Senate has refused to ratify it --on precisely these grounds that it
exempted most of the world -- is another legal kettle of fish altogether,
complicated by among other things NAFTA. That potential conflict is not
addressedhere.

Put simply, Canada
has formally agreed to "common but differentiated responsibilities"
among the world's nations. What that means, in fact, is that Canada signed
an agreement to punish itself while agreeing that other countries don't have to
punish themselves, nor can they be punished for dancing to their own
"climate" tune.

That's what "common but differentiated" means. It's the express
premise of the 1992 United Nations Framework Convention on Climate Change
(UNFCCC or Rio treaty) and the 1997 Kyoto Protocol amending Rio,
from which the rest of the agreements' terms flow. Kyoto specifically defines
these different responsibilities, including that Canada must reduce its GHG
emissions to 6% below 1990 levels, averaged over 2008-12; China, India et al.,
who also ratified the pact, need not do anything of the sort or even anything
of substanceat allinorder tobe "compliant."

At least for thenext five years andarguably until a new international
standard is agreed, Canada has forfeited any right to do precisely what its
policymakers are increasingly urged todoas ameans of selling thepublicon
adoptingpainfuldomesticmeasures.

Terence Corcoran has addressed some of the more technical, administrative
conundrums that this would trigger by assigning different countries involved in
a goods production with varying responsibility for portions of its embedded
GHGs.These are only the tip of the regulatory iceberg.

Canada is no exception
among Kyoto's
few covered parties, not one of which has reduced emissions since the pact was
agreed to. (Canada has no
hope of meeting its Kyoto
promise. As of 2005, emissions were 25% higher than 1990 and 33% above its Kyoto target to be met
beginning this year.)

How does Canada impose
prejudicial trade terms on another nation for "failing" to do
something that nation never promised to do, while Canada did promise to do so and is
spectacularly failing to do so? Who is going to sue and tariff whom over this
breach of agreement?

Complicating matters further is that, among others, Australia and most of Europe
havean "emissions reduction" promise that is in fact a promise to
increase emissions above 1990 levels, just not above whatever number they
agreed to. Canadaalsoaccepted this.

To get around these difficulties, the argument is instead made that Canada will
penalize countries that do not impose the same policies. That is, if Canada imposes
a new global warming tax, countries exporting goods here must adopt some
policies of like kind and quality. But Canada has plainly agreed to not do
things such as try and impose some border adjustment to "level the playing
field" for most, and possibly all, nations not subjecting themselves to
some form of global warming tax.

Ongoingnegotiations are stalematedover a post-2012 successor agreement to Kyoto. Key issues dogging
these talks include that European Union members still cannot agree among
themselves on individual member state quotas; absent that, Europe
cannot credibly commit to a collective number.

Japan sees the artifice
of the 1990 baseline, designed to lure the EU and Eastern
Europe into the original agreement, which, respectively, took
advantage of having shuttered East German production following reunification
and the post-Soviet economic collapse. Japan, therefore, demands a less
prejudicial (and certainly no less arbitrary) 2005 baseline year against which
to measure performance.

The key stumbling block is whether any agreement will continue to exempt
those countries representing the vast majority of projected economic activity
and energy use. This is the detail underlying Canada's conundrum of seeking trade
sanctions against those same parties.

The issues may be complex, yet they are clear. Equally clear, however, is
that Canada
has agreed for the foreseeable future that it has no basis to impose trade
sanctions against countries it agreed to exempt from Kyoto-style regimes, for
the supposed offense of not adopting these policies. Policy-makers need to
honestly tackle the promises they are making and what this means for Canada's
economy.