How will the world react to the carbon tax proposed by the European Union at the borders?
The European Union has drawn up ambitious plans to tackle climate change through various economic measures, including a proposed carbon border a tax that would levy charges on imports based on the carbon levels they produce.
The US has expressed concern over the EU’s plans to reduce carbon emissions by increasing taxes and the increase in disputes within the World Trade Organization is cause for concern. But in the end, it will likely have the longer-term effect of getting other countries to act in a similar case, according to Columbia University natural resource economics professor Scott Barrett.
“It puts pressure on other countries like the United States to step up,” Barrett said in a recent interview with “Marketplace Morning Report” host Andy Uhler. “And from that point of view, it’s a positive move.”
Barrett said that while the EU will likely see trade retaliation in the future, Brussels’ latest move will force others to materially engage in climate change policies.
“I think it’s really inevitable that any serious action on climate change has to be trade-related,” Barrett said. “It is simply a matter of finding a way to link trade and the climate that does not disrupt trade, damage relations between countries and solve the problem of collective action of getting countries to reduce their emissions. greenhouse gases. “
Below is an edited transcript of Uhler and Barrett’s conversation.
Andy Uhler: I’m curious, from your perspective, about this idea of implementing initiatives on climate change, kind of implementing the idea that we have to deal with climate change and realities, and integrating them in things like trade agreements. Is it this novel? Is this a new idea? How did it happen?
Scott Barrett: The idea has been gaining ground for a long time. And this has in fact been touched upon in the climate negotiations before, but has never been taken any further. The final output that you see is entirely silent on this issue. But he came before. It appeared in US law, the Waxman-Markey bill incorporated an element of it very similar to the EU proposal. And Europe itself adopted something like that for a sector, for international aviation, a few years ago. But it was never fully implemented. Or to put it another way, they backed down when there was a threat of retaliation from other countries.
Uhler: You know the United States came out and said, “Look, we don’t have a price on carbon, how are we going to do it? »Right? I mean, is there going to be a setback, inherently, when you have this stuff, I guess, going through different platforms, right? You have trade deals, then you have carbon?
Barrett: Well, I think there must be a mixed response. I think on the one hand, you know, what Europe is trying to do is move the negotiations forward. Its main interest is to ensure that its own industries do not lose out from its more ambitious climate policy. And also to make sure that emissions don’t relocate, which is a big concern for the trading system, that if Europe tightens, other countries can take over, so to speak, and emit more. However, I think there will be problems. The first is that it is done unilaterally, I think that might worry some. There are other issues around WTO compatibility, but we won’t know how that would be resolved until a case, you know, goes to the WTO, if there is one. . The issues will likely be settled in negotiations before this stage. But it puts pressure on other countries like the United States to step up. And from that point of view, it’s a positive gesture.
Barrett: One last thing, actually, should I say. You know, their concern is with what is called leakage. So it’s this problem that if a country, a group of countries, acts, their own costs go up, therefore, they lose a comparative advantage in greenhouse gas-intensive industries compared to other countries. This is therefore a real negative point. But another aspect of it, which they cannot control by this measure, is that their demand for fossil fuels will decrease due to their ambition, which will actually lower global fossil fuel prices and push other countries, indirectly, to increase their emissions. . And they are not able to control it.
Uhler: In terms of setting that price for carbon, you know, we talk about it all the time in international relations, right? The idea of, you don’t have a world governing body, you don’t have somebody saying, “Hey, this is how we do things. You sort of have this idea of sovereignty. Is it just inherent in everything we are trying to do? When we deal with commons, the idea that the world is tackling climate change, again, is inherently difficult, isn’t it?
Barrett: It is inherently difficult. It is in fact probably the most difficult problem of its kind that we have ever seen. And we have made repeated attempts to try to negotiate an effective 30-year agreement, investing enormous diplomatic efforts. And there isn’t much to show for that. And the Paris Agreement is a voluntary agreement and therefore relies on the various countries of the world to intensify. And they really don’t do that. This trade measure does not really target that directly. Its objective is simply to neutralize the competitive effects. But a different way of thinking about it is to actually use trade as a vehicle to enforce a multilateral-level deal to cut emissions, in this case, probably only for greenhouse gas-intensive sectors. So I don’t know if this is how things are ultimately going to end. But I think, well, if you look at the history of the Aviation Directive, well, their instinct was to strike back first. It’s sovereignty, they don’t want someone else telling them what to do. But it also sort of triggered negotiations between countries on how to resolve this issue internationally. And it is possible that this is also an implication, or rather an end result, of this unilateral effort by Europe and may in fact just wake up other countries and get them to think more seriously about how they are really going. ‘tackle this problem.
Uhler: There’s also – we’ve talked about this 100 times on “Marketplace” – but sort of the idea of a market opportunity here for countries if you stand out. I mean, China has been explicit enough to oppose the idea of clean energy and renewables and things like that. There are economic advantages to being sort of first in the market, right?
Barrett: There are benefits, potentially, as long as you get that transformation all over the world. So in other words, markets have to change everywhere, because then countries that move early to develop technologies will find markets. So you’re playing this tricky game where on one side you’re trying to push to push the rest of the world out. And you hope to profit from it. But what if the rest of the world doesn’t join you? And that’s what’s been going on for about 30 years. That’s part of what they’re trying to achieve with this measure. But there are actually other ways they could push it even further. But it really should be dealt with a lot more at the multilateral level. So I think another implication of that is that we may have to rethink the way we negotiate agreements like the Paris Agreement, to introduce measures like this, which are negotiated and therefore accepted by different parties. countries, but really propelling global action to solve big threat.
Uhler: These are proposals, they are certainly not laws. You are going to have cases before the WTO, I imagine, protectionism arguments. Do we have any idea of the timeline of how this kind of game plays out? You mentioned 30 years of dealing with this issue. I hope that is not what we are considering.
Barrett: I don’t think it is. I think Europe will go ahead with this. They have a lot to do. They have their own internal negotiations to settle. But I think they’re going to want to move on with this. Now, as they do, we’ll have to see how other countries respond as well. And as we did, we have already seen this happen with the Aviation Directive. So this is essentially the first shot through the arc. But I don’t think anyone can really accept the status quo ante because it has been ineffective. And I think it’s really inevitable that any serious action on climate change has to be trade-related. It is simply a matter of finding a way to link trade and the climate that does not disrupt trade, damage relations between countries, and solve the problem of collective action of getting countries to reduce their emissions. greenhouse gas.