Exiting Paris Should Weaken Carbon Tariff Threat

Other nations may punish President Trump for pulling out of the Paris Agreement by imposing “border taxes”—aka carbon tariffs—on U.S. exports, according to numerous media accounts. Some have been beating this drum since the week after Trump’s election victory on November 8, 2016.

Trade Saber Rattling

In mid-November, Slate, Quarts.Com, and the New York Times quoted or cited former French President Nicolas Sarkozy, who warned he “will demand that Europe put in place a carbon tax at its border, a tax of 1-3 percent, for all products coming from the United States, if the United States doesn’t apply environmental rules that we are imposing on our companies.”

The Times quoted sources in Mexico and Canada warning of carbon tariffs if Trump pulls out of Paris, and surmised the World Trade Organization (WTO) would approve complaints that U.S. industries “are operating under an unfair trade advantage by avoiding any cost for their pollution.” Former Clinton administration climate official Dirk Forrister agreed, opining that “if one big country backs out [of the Agreement] it could trigger a whole wave of trade responses.”

Such trade saber rattling subsided for a while but resumed in the run-up to Trump’s June 1 Rose Garden speech announcing his decision to pull out of Paris. On May 8, 9, 16, 17, and 18, two dozen large companies including Google, Levi Strauss, and Microsoft published an open letter in major newspapers admonishing Trump that withdrawal from Paris “could expose us to retaliatory measures.”

On June 1, Quarts.com posted “A simple way the rest of the world could punish Trump for quitting the Paris climate agreement.” The reporter cites social cost of carbon guru Chris Hope, who believes Europe should impose a 6-10 percent carbon tariff on U.S. goods—effectively a $25 billion-$40 billion tax on U.S. imports. On June 6, Salon chimed in with an op-ed titled “After Trump’s exit from Paris Accord, just sanction the bastards!”

Non-Binding Does Not Mean No Risk

What to make of all this? The trade sanctions talk torches proponents’ claim that the Paris Agreement poses no risk to the U.S. economy because the pact’s emission reduction targets are “non-binding.”

The Paris Agreement obligates parties to submit non-binding emission-reduction pledges called “nationally determined contributions” (NDCs) every five years. The U.S. NDC, submitted by President Obama, is a pledge to reduce U.S. emissions 26 to 28 percent below 2005 levels by 2025, along with a list of associated policies, such as the Environmental Protection Agency’s Clean Power Plan, automobile fuel-economy standards, and appliance energy-efficiency standards.

To keep America in the pact, Paris advocates told Trump he is free to replace Obama’s “ambitious” NDC with any set of commitments he likes better—even, for example, his fossil-friendly energy agenda.

As discussed previously on this blog, Article 4.11 of the Agreement allows a party to adjust its NDC “with a view to enhancing the level of [climate] ambition,” not for the purpose of reducing ambition. Moreover, although many commitments we make are not legally binding, a commitment is a sham if we can retract it at any time just to avoid criticism for having failed to meet it.

In any event, although the Agreement provides no option for parties to make their existing NDCs less ambitious, Article 28 expressly allows parties to withdraw. Yet Paris proponents now threaten to penalize U.S. exporters because Trump has chosen to exercise the lawful option. Would they not eventually do the same were America to remain in the Agreement but flout Article 4.11 by replacing Obama’s NDC with drill-baby-drill?

While the Agreement specifies no economic sanctions for failure to make and keep “ambitious” emission-reduction promises, neither does it prohibit parties from imposing tariffs, individually or in concert, to punish nations that increase emissions or simply don’t decarbonize fast enough. Indeed, Paris creates a permanent ‘coalition of the ambitious’ primed to retaliate, via carbon border taxes, against any U.S. leader, like Trump, who dares to champion the American people’s freedom to develop the nation’s energy resources.

The recent trade retaliation threats expose the creeping coercion inherent in so-called voluntary climate treaties. Just as the “non-binding” UN Framework Convention on Climate Change was the setup for the “binding” Kyoto Protocol, so the “non-enforceable” Paris Agreement is the setup for a new era of punitive tariffs to impose European-level energy prices on countries, like the United States, that mostly shun European-style energy policy.

Of course, Paris advocates claim green-energy mandates will make us richer. But if that were so, pulling out of Paris would be a case of shooting ourselves in the foot —a blunder redounding to the benefit of those choosing the greener path. There should then be no need for border taxes to “level the playing field.”   

In reality, although green energy schemes definitely enrich some special interests, they can also produce net job losses, inflate energy costs, amass mountains of debt, and outsource investment and emissions. At some point, manufacturers in carbon-constrained jurisdictions are bound to demand punitive measures to hobble their less regulated rivals. Thanks to Trump’s unexpected election victory, proponents have tipped their hand years before the first commitment period (2020-2025) even begins.

Exiting Paris Should Weaken Carbon Tariff Threat

The Agreement’s architects kept their predatory trade agenda under wraps when they negotiated the pact, adopted it, and brought it into force. Now, the Agreement’s lead architect and biggest financial backer has walked away from the scheme, inciting proponents to bare their claws and teeth.

Paradoxically, exiting Paris should help shield U.S. firms from newfangled green protectionism. If we remain in Paris, petitioners in WTO proceedings could point to the inconsistency between U.S. membership in a de-carbonization pact and Trump’s domestic energy agenda. “Pexit” would remove the discrepancy as well as eliminate any pretense that Obama’s NDC remains an official U.S. commitment.

More fundamentally, pulling out of Paris should induce other countries to reassess their relationship to the Paris Agreement, especially developing countries that joined in hopes of receiving hundreds of billions of dollars from the United States in “climate finance.” In short, pulling out of Paris should diminish the prestige, momentum, and cohesion of a treaty adopted in part to facilitate policy coordination by large numbers of nations to penalize U.S. energy-intensive products in global trade.