Carbon Tariffs Update: EU Meetings Produce Nothing; UN Deadline "Softens"

The latest EU meeting of climate ministers produced no new mandates and demonstrated a logjam over emissions reductions targets and border measures. This turn of events should come as little surprise to those of us used to watching the glacial pace of EU policymaking, but it's still worth noting because the last time we checked in with EU ministers, they were loudly and angrily squawking about the collapse of the UN Climate Conference in Copenhagen. Well, they're still squawking, but so far the ministers' frustrations have not resulted in a new push for carbon tariffs (aka "border adjustment measures") on imports from countries that have less severe climate change mitigation policies. Here's The Economic Times with the "news":

The European Union failed to arrive at a consensus on the quantum of its emission reduction commitment. At the meeting of EU ministers in Spain, there was disagreement over whether the 27-member bloc should commit to cutting its emissions by 30% by 2020 from its 1990 levels.

While Britain, France and Germany have called for scaling up the bloc’s commitment to 30%, the move was opposed by Poland, Hungary and Italy. Ambassadors from EU members will continue discussions on emission target in Brussels on Wednesday.

The reduction of greenhouse gas emissions by 30% is conditional on “comparable” offers made by other rich nations and “economically more advanced developing countries contribute adequately according to their responsibilities and respective capabilities”.

Sidelined at the Copenhagen climate conference held in December, the EU is attempting to regain its influence in the global climate debate. The bloc, which has been the most pro-active, seeks to pressure other nations to increase the level of ambitions by setting a higher target for itself. Those supporting a higher target like the UK have argued that the offer is conditional on other developed countries follow suit. In doing so, the EU hopes to reassert its influence in the climate debate.

There has been some heartburn within the EU over the way the US, which has been rather unambitious in its climate efforts, and the world’s target emitter China took over the Copenhagen summit. Germany, another proponent of a higher conditional commitment, argued that a 20% reduction was no longer ambitious, and that the European economies could afford to take on a 30% reduction. However, in Seville, Poland, Italy and Hungary wanted to omit any reference to the 30% target.

Going by the offers made by developed countries in Copenhagen, the reduction in emissions would be about 13% on average in 2020 from 1990 levels. Given this, it is being argued that a commitment to a deeper cut by the EU cannot be justified. The 20% reduction goal is underpinned by recent legislation that tightens carbon dioxide caps on energy and manufacturing companies in Europe’s emissions-trading system and that requires each EU nation to limit discharges from industries outside the programme. A move towards a deeper cut in emissions would mean a tightening of curbs in the emissions trading programme.

France, which is also pushing for a higher commitment, would like the EU to consider tariffs on imports of manufactured goods from countries with weaker climate-protection rules as a way to protect European industry from unfair competition. France has suggested that the 30% reduction target could require a carbon inclusion mechanism, to protect the European industry.

The northern member states are sceptical about a trade mechanism that included the price of carbon dioxide. However, the failure by other developed countries to match a 30% reduction in emissions by the European Union could once again open the door to considering protecting European industry with measures such as taxes on products imported from nations that block adoption of binding reduction targets.

The EU deadlock continued today, highlighting a growing rift between EU members about what to do on climate change, particularly where it looks increasingly likely that the US won't pass any sort of climate change bill in 2010.

Meanwhile, the UN announced today that the January 31 deadline established in Copenhagen for countries to announce their carbon emissions targets is no longer, well, a real deadline:

The UN has dropped the 31 January deadline by which time all countries were expected to officially state their emission reduction targets or list the actions they planned to take to counter climate change.

Yvo de Boer, UN climate change chief, today changed the original date set at last month's fractious Copenhagen climate summit, saying that it was now a "soft" deadline, which countries could sign up to when they chose. "I do not expect everyone to meet the deadline. Countries are not being asked if they want to adhere… but to indicate if they want to be associated [with the Copenhagen accord].

So far, only 20 of 192 countries have announced their climate change plans. That's not good, and it's far from certain whether 2010 will produce anything tangible on the multilateral front, or whether everything will get punted to Mexico City at the end of the year.

Regardless, I'll certainly be here keeping an eye out for sneaky (likely French) protectionists dressed in pretty green clothing.

Early Evidence that Copenhagen's Collapse Might Torment Free Traders

A few days ago, I opined that the failure of the Copenhagen (Non)Agreement on Climate Change to include any multilateral disciplines - indeed any language at all - on carbon tariffs or other border measures could actually embolden eco-protectionists in 2010:

[T]he final Copenhagen "agreement" is actually a pretty big win for the eco-protectionists here and abroad. Without any language on border measures - even hortatory language promising an examination of their positive and negative effects - US protectionists (in the House, Senate or EPA) have carte blanche under the "agreement" to include carbon tariffs in any domestic climate change mitigation measures. And they can even use the Copenhagen collapse - i.e., an alleged failure of developing countries to agree on binding multilateral commitments - as an excuse for why carbon tariffs are (again, allegedly) absolutely essential to maintaining US competitiveness. Their argument here is pretty obvious: developing countries prevented a binding multilateral climate change agreement, and without that agreement, US regulations would allow imports from these same developing countries to destroy the US manufacturing sector. Thus, carbon tariffs are essential, and they're even allowed under the Copenhagen "agreement"!

Unfortunately, it appears that my pessimism was warranted (although a bit too narrowly tailored to the United States alone).  As BNA reports (subscription) today, a few EU officials are now clamoring for carbon tariffs, and they're blaming Copenhagen:

European Union environment ministers said Dec. 22 the 27-nation bloc would consider imposing carbon tariffs and other sanctions in the wake of the perceived failure of the Copenhagen climate conference.

Speaking after a session of the EU Environment Council, Swedish Environment Minister Andreas Carlgren said "we should really show that we are not satisfied" with the outcome of Copenhagen, and that the bloc would consider "using our weapons" to compel other economies to tackle rising greenhouse gas emissions.

Teresa Ribera, Spain's secretary of state for climate change, said the bloc should be more "hard-hitting" in its approach to international climate mitigation and adaptation policy.

Sweden currently holds EU's rotating presidency, and Spain will take over its presidency Jan. 1.

The EU could use its financial power more effectively and could make more use of instruments, such as carbon markets to compel action by non-EU countries, Ribera said....

Carlgren said the ministers made the comments amid "disappointment and frustration" in the EU over the Copenhagen outcome.

The ministers did not go into detail on measures that might be put in place, but Ribera said Spain will convene a special meeting of EU environment ministers in Seville, Spain, Jan. 15-17 to discuss the "strategic line" the EU should take in promoting its environmental agenda internationally.

The ministers asked the European Commission, the bloc's executive arm, to prepare for that meeting an analysis of the Copenhagen summit and its results.

Rebecca Harms, a German lawmaker who leads the Green Group in the European Parliament, said EU governments should make a "a serious analysis of last week's failure" and that Spain should adapt its EU presidency program in light of this....

Carlgren said he is expecting a discussion on carbon taxes in Seville, but he added that the EU should not overuse its "weapons."

Threats of border adjustments or taxes for carbon-intensive goods could lead to "fragmented solutions" to the problem of global warming and could undermine the international consensus, Carlgren said.

He added that the Seville meeting would consider the "geopolitical picture" behind the Copenhagen outcome, and that the EU should first and foremost support a "common international system"for tackling climate change.

This is especially important for the less powerful countries because "great powers are always able to live without an international system,"he said....

Hopefully, Carlgren and Ribera's angry advocacy for carbon tariffs either (i) reflects a strategic play to get developing countries to play ball in 2010, or (ii) will subside after the sting of Copenhagen wears off in the new year. And perhaps we shouldn't put too much stock in this outburst, considering that Carlgren voiced reservations about going the unilateralist route, and that other EU officials have loudly opposed carbon tariffs in the past.

Then again, that reasonable EU opposition was before the UN's Copenhagen debacle embarrassed the hell out of all of these international bureaucrats and clearly demonstrated that the big players in the climate game were the United States and the "BASIC" countries (Brazil, South Africa, India and China).  If reason has given way to revenge (or just abject frustration), we could be in for a very bumpy 2010 in the EU and elsewhere.

We should know a lot more after those mid-January meetings in Seville, so stay tuned.

UPDATED: On Trade, It's More Like "Nopenhagen"

First of all, sincerest apologies for the bad pun. I simply couldn't resist. Now, on to the news (if you can even call it that).

The UN Climate Summit in Copenhagen has officially ended, and the "agreement" reached is minimal. The greenies are (mostly) depressed. The politicians are spinning. And the leaders have all gone home. There's plenty of reporting on the negotiations and the details of the final agreement (assuming there actually is one), so I'll spare you those. Instead, I'll just focus quickly on the trade provisions - or, more accurately, the lack thereof - in the final "agreement."

The full text is here, and a quick review makes clear that there is not a single word about trade measures - be they border offsets, carbon tariffs, border adjustments, or other wonkish terms - in the entire "agreement." (As you'll recall, there were several draft paragraphs - ranging from very limiting to abject diplo-fluff - circulating as late as Thursday.) Moreover, President Obama didn't mention the contentious issue in his closing remarks to the press, and he also avoided any discussion of "domestic competitiveness" or any other stealth ways of saying "protectionism."

Indeed, the only provisions that might possibly cover the issue of trade measures are paragraphs 4 and 5, which read (basically, "Annex I" = developed; "Non Annex I" = developing):

4. Annex I Parties to the Convention commit to reducing their emissions individually or jointly by at least 80 per cent by 2050. They also commit to implement individually or jointly the quantified economy-wide emissions targets for 2020 as listed in appendix l, yielding in aggregate reductions of greenhouse gas emissions of X per cent in 2020 compared to 1990 and Y per cent in 2020 compared to 2005. Annex I Parties that are Party to the Kyoto Protocol will thereby further strengthen the emissions reductions initiated by the Kyoto Protocol. Delivery of reductions and financing by developed countries will be measured, reported and verified in accordance with existing and any further guidelines adopted by the Conference of Parties, and will ensure that accounting of such targets and finance is rigorous, robust and transparent.

5. Non-Annex I Parties to the Convention will implement mitigation actions, including those to be submitted to the secretariat by non-Annex I Parties in the format given in Appendix II by 31 January 2010, for compilation in an INF document, consistent with Article 4.1 and Article 4.7 and in the context of sustainable development. Least developed countries and small island developing States may undertake actions voluntarily and on the basis of support. Mitigation actions subsequently taken and envisaged by Non-Annex I Parties, including national inventory reports, shall be communicated through national communications consistent with Article 12.1(b) every two years on the basis of guidelines to be adopted by the Conference of the Parties. Those mitigation actions in national communications or otherwise communicated to the Secretariat will be added to the list in appendix II. Mitigation actions taken by Non-Annex I Parties will be subject to their domestic measurement, reporting and verification the result of which will be reported through their national communications every two years. Non-Annex I
Parties will communicate information on the implementation of their actions through National Communications, with provisions for international consultations and analysis under clearly defined guidelines that will ensure that national sovereignty is respected. Nationally appropriate mitigation actions seeking international support will be recorded in a registry along with relevant technology,
finance and capacity building support. Those actions supported will be added to the list in appendix II. These supported nationally appropriate mitigation actions will be subject to international measurement, reporting and verification in accordance with guidelines adopted by the Conference of the Parties.

If you can divine any commitments - or even aspirational or hortatory language - on trade measures, please let me know. You're either far smarter than me (quite possible), or you're crazy (also quite possible).

Of course, once it was decided that this "agreement" would, as President Obama made clear, "not be legally binding" in any way, shape or form, it's possible that the countries demanding limits on border measures just dropped the issue altogether. I mean, why waste valuable negotiating leverage on demanding restrictive trade language that could simply be ignored or amended in the very near future, right? (The word on the street is that Mexico City November 2010 will be the next "last chance to save the planet.")

Such reasoning, unfortunately, is pretty short-sighted, and I think that the final Copenhagen "agreement" is actually a pretty big win for the eco-protectionists here and abroad. Without any language on border measures - even hortatory language promising an examination of their positive and negative effects - US protectionists (in the House, Senate or EPA) have carte blanche under the "agreement" to include carbon tariffs in any domestic climate change mitigation measures. And they can even use the Copenhagen collapse - i.e., an alleged failure of developing countries to agree on binding multilateral commitments - as an excuse for why carbon tariffs are (again, allegedly) absolutely essential to maintaining US competitiveness. Their argument here is pretty obvious: developing countries prevented a binding multilateral climate change agreement, and without that agreement, US regulations would allow imports from these same developing countries to destroy the US manufacturing sector. Thus, carbon tariffs are essential, and they're even allowed under the Copenhagen "agreement"!

Spurious? Sure. Likely? Undoubtedly.

Fortunately, the chances of congressional passage of cap-and-trade or any other domestic climate change legislation before the Mexico City conference are slim-to-none. Thus, it's highly unlikely that Congress will implement any sort of eco-protectionism in the next year (at least as part of climate change mitigation legislation). However, that political reality doesn't change the fact that the final Copenhagen "agreement" does nothing to limit the developed world from resorting to green protectionism. And considering the strong language proposed by India and other developing countries banning the use of border measures, as well as the inclusion of such measures in current US climate change legislation, the failure of the Copenhagen agreement to even address the issue is, well, a failure.

UPDATE: the original linked text was not final. The text above is. Furthermore, the UN Delegates did NOT adopt the accord, they merely "took note" of it. Thus, this final text is practically worthless, and it's less of a win for the eco-protectionists. That said, it still would have been good to have something on border measures in the final "agreement."

Summing Up the Current Debate on Carbon Tariffs

The Old Grey Lady has finally gotten around to reporting on the serious conflict at Copenhagen over the use of carbon tariffs. For readers of this blog, the NYT's report is pretty pedestrian, but it contains one sentence that I think sums up the current debate over carbon tariffs more perfectly - and humorously - than any I've seen (or written for that matter):

Despite threats that border adjustments pose to the global trading system, the provisions continue to fit well with domestic politics in the United States and European countries like France and Italy, particularly at a time when major economies are still reeling from the worst downturn in decades.

The journalist captures the conflict perfectly - one between crass political pandering on the one hand and the future of the global economy on the other. And the "humorous" part is the fact that the line was delivered without a hint of judgment or irony. Indeed, only in today's political environment can destroying the global economy "fit well with domestic politics in the United States."

Unfrigginbelievable.

Finally, today's NYT article is also valuable in one other way: another day has passed, and still no agreement on carbon tariffs.

Tick, tick, tick.

Copenhagen Update: Three(!) Carbon Tariff Alternatives?

Another day has come to a close in Copenhagen, and still no consensus on what to do about trade measures in the final text of a UN climate change agreement. Indeed, according to the International Centre for Trade and Sustainable Development (ICTSD), there are now three alternatives for text on carbon tariffs:

The text on the potential economic and social consequences of response measures taken in response to climate change now includes three options on how to address the question of border carbon measures. The first option is strong language prohibiting their use. The second is simple language referring to the principles of the climate convention.

The third option - considered the compromise alternative - emphasises the specific language in the Convention so as to create a level of comfort for countries concerned with unilateral measures that the United States is contemplating in their national legislation. Finally, this text also includes a bracketed paragraph that would establish a forum with an array of functions, including identifying and evaluating the effects of response measures, both positive and negative. The power and extent of this forum has yet to be defined, but has been the subject of much debate in the negotiations.

I discussed the first option yesterday, and offered my opinion (based on that text and unflinching support for it from China) that the US might have to relent on carbon tariffs in order to secure a final climate deal. But now that I see there are actually three alternatives - ranging from an outright ban on carbon tariffs to complete, non-binding fluff - I'd like to offer another possible outcome to the carbon tariffs debate at Copenhagen: a diplomatic punt to the next round of negotiations.  This appears to be the third option outlined by ICTSD, and considering how fragile all of the talks are - and that they probably won't result in much of anything that's actually binding (politically or otherwise) - a flaccid decision to identify and evaluate the effects of carbon tariffs, "both positive and negative," seems a highly plausible outcome.

Furthermore, Keith Johnson over at the WSJ's Environmental Capital blog makes a very solid response to my point yesterday that strong US resistance to anti-tariffs language could very well be a negotiating ploy.  Johnson points out statements by Senator John Kerry today - a supporter of eco-protectionism himself - on the need for carbon tariffs language in any final Senate climate bill in order to get protectionist Democrats like Sherrod Brown (D-OH) on board.  Afterall, any final Copenhagen agreement will need to be ratified by Congress and implemented through domestic legislation. 

I'm still not sold that Kerry also isn't posturing - and using Sherrod Brown to do it.  But given his statements and the alternative draft language on border measures, I also think it's possible that a nice, deep punt on the issue will end up ruling the day.

So in other words, it's anybody's guess how this mess works itself out.  But we should know Friday, right?

Right?!?!

Could Carbon Tariffs Scuttle a Copenhagen Agreement?

Well, probably not, but as Bloomberg reports, developed and developing countries are still at loggerheads over the controversial issue:

China is demanding that a global agreement to reduce greenhouse gases prohibit nations from imposing trade sanctions, further pitting the world’s No. 1 emitter against U.S. lawmakers.

The draft accord from a meeting in Copenhagen to forge a climate treaty bars rich nations from adopting trade actions tied to global warming. China said such language will avert “trade wars.” The U.S. Chamber of Commerce sides with China.

“We will always oppose any practice of establishing trade barriers under the guise of protecting the global environment,” Yu Qingtai, China’s climate change ambassador, said in an interview....

[T]rade is emerging as a central issue dividing developed and developing countries at the United Nations gathering in the Danish capital....

In Copenhagen, the latest version of a proposed treaty includes language banning developed countries from ‘‘resorting’’ to climate-related trade measures is printed in brackets, meaning it lacks consensus agreement and must be dealt with by higher-level negotiators from 193 countries....

Yu said China and other emerging economies simply want outlined in a new treaty what he says already exists in the 1992 UN Framework Convention on Climate Change, the basic climate agreement governing the current talks.

As I noted on Friday, the trade section (paragraph 6) of the first draft Copenhagen text was blank, so it appears that the climate negotiators have made a little progress by at least inserting something there.  However, the brackets make clear that no one has agreed to anything just yet.  (I can't find the latest draft online, can you?) And clearly, the issue of carbon tariffs (aka "border adjustment measures") and eco-protectionism more broadly continues to be a serious roadblock to completing a Copenhagen climate agreement by this Friday.

That said, the current conventional wisdom on this issue - pushed by Bloomberg, Reuters and others - requires two pretty significant clarifications:

First, developing countries like China and India are not the only ones opposing carbon tariffs.  As I've noted several times, many developed countries (e.g., Germany, Australia, New Zealand) oppose carbon tariffs and other forms of eco-protectionism.  So while China's clearly one of - if not the - loudest opponents, there are plenty of other countries, developing and developed alike, rooting for the inclusion of language in the Copenhagen agreement that would limit or ban the use of border measures.

Second, US resistance to the bracketed language on trade measures might not be due to US politicians' demands for carbon tariffs in House and Senate climate change legislation.  At least entirely.  Instead, the US position might be a basic negotiating ploy to get China and others to cave on other key Copenhagen issues like emissions caps and verification measures.  Indeed, here's a NYT report from yesterday hinting to just that:

A group of 10 Democratic senators wrote to Mr. Obama two weeks ago warning that the Senate would not ratify any treaty that did not protect American industry from foreign competitors who do not have to meet global warming emissions limits.

That threat could, paradoxically, help drive the Chinese to cement a deal here, an American official said. “Their No. 1 motivation is to avoid border tariffs,” the official said.

Considering that US officials themselves acknowledge the negotiating leverage that carbon tariffs provide them over China and other developing nations, the United States' current demands at Copenhagen might just be posturing, rather than blatant support for eco-protectionism (as could some Senators' recent statements demanding carbon tariffs).  Considering that so many other developed countries also oppose the controversial measures, the former scenario actually seems more plausible than the latter.

My guess is that it's a little of both, actually.  The politics at home are pretty daunting - I've tallied 19 Senators in support of carbon tariffs - so US negotiators have every reason to oppose language expressly banning them.  That said, the negotiators must know that many more countries oppose border measures than support them, and that it's an agreement-killer for almost all developing countries.  They also know, however, that carbon tariffs are great negotiating leverage, so it's win-win for them to hold out until the very last second and then relent only when the entire agreement hangs in the balance.  The smartest thing to do, it seems, would be for them to hold out and perhaps get a little more from China, India and others, but then cave at the last minute and show the angry folks back home (almost all of whom otherwise support climate change legislation) that they had only one choice: give in on carbon tariffs or get nothing at all.

(Obvious disclaimer: just because that seems to be the smartest play doesn't mean that's what's actually going down, of course!)

Regardless of US motivations and strategy, it's becoming increasingly clear that border measures are going to be a major sticking point at Copenhagen until the very last minutes of the negotiations.  Whether they end up scuttling a final agreement is far from clear, but it'll sure be fun to watch, now won't it?

First Copenhagen Draft Released - Trade Section Conspicuously Blank

The first draft text of the Copenhagen climate summit's "long-term action plan" (aka draft negotiating text) was released today, and fellow trade geeks will be less interested in what's in the agreement and far more interested in what's missing: any text on trade measures.  The full text of the draft agreement is available here, and at Article 6 where the text on trade measures should be, it merely says:

[To be elaborated: provision on trade measures (reference to Art. 3, paragraph 5 of the Convention);]

In other words, the diplomats are so torn about how to handle trade measures (like carbon tariffs or domestic taxes on imports) can't even agree on draft (bracketed) text.

Ooooh, controversy!

As you'll recall, India proposed the following text, which would have essentially banned the use of carbon tariffs and other border measures by developed countries, to be inserted at Paragraph 6 of the draft agreement:

Developed country Parties shall not resort to any form of unilateral measures including countervailing border measures, against goods and services imported from developing countries on grounds of protection and stabilisation of the climate. Such measures would violate the principles and provisions of the Convention, including, in particular, those related to the principle of common but differentiated responsibilities (Article 3, paragraph 1), to trade and climate change (Article 3, paragraph 5), and to the relationship between mitigation actions of developing countries and the provision of financial resources and technology by developed country Parties (Article 4, paragraphs 3 and 7).

The United States summarily rejected the inclusion of that text, wishing (in my opinion) to maintain its negotiating leverage during the Copenhagen negotiations.  But here it is three months later - and a full week into the Copenhagen conference - and yet we still have no agreement on even a framework for final trade measures text.  Nada.  Clearly, there is a broad disagreement between the pro- and anti- border measures camps (as I've been discussing for a while now).

This is going to get verrrrrry interesting next week.  Stay tuned.