The Economist has two articles this week on the America's Climate Security Act (ACSA), a bill in the U.S. Senate. They are generally in favor of its goals (reduction of greenhouses gases through a cap-and-trade scheme), but have a concern about one aspect of it. In one article, they explain the concern as follows:
ACSA's biggest concession to industry, however, is a clause that would penalise imports from countries that do not have an emissions cap. To get such goods through customs, importers would have to buy permits to cover the greenhouse gases emitted during their manufacture. One of the biggest fans of this idea is the AFL-CIO, America's trade union federation, which worries that a cap-and-trade scheme would further sap the competitiveness of American manufacturing and hasten the exodus of jobs to China, India and Mexico.
In the other article, they say:
The main purpose of the bill is to establish a carbon price through a cap-and-trade system. The proposal is a reasonable one, informed by the experience of Europe's similar scheme. But to placate the manufacturers and the unions, the bill also includes a measure which Europe has rightly abjured (although some member states have recently been demanding one) for a border tax on carbon-intensive goods. Imports would have to be certified as to their carbon content, and would be taxed accordingly.
Proponents of the idea argue, first, that American producers would otherwise be disadvantaged by the higher costs that their country's stricter standards impose on them. Second, they maintain, a tax would encourage developing-country governments to cut the carbon-intensity of their economies for fear of losing lucrative export markets.
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On the first argument, if America establishes a carbon price, an energy-intensive industry such as aluminium would very likely choose to expand capacity elsewhere. Yet it is not clear that, in the long run, environmental regulation does much to suppress economic growth. After all, California imposes tighter rules on companies than do most other American states, but its long boom suggests that greenery and growth can coexist comfortably.
China and India might well come more swiftly to the negotiating table if they faced the possibility of losing their export markets. But the experience of America and Europe suggests that threatening trade sanctions is not the only way to bring a country round. After all, Europe set a carbon price without imposing tariffs on American goods, and America looks like following its lead anyway. What's more, the costs of a border tax could be huge, not just because of the massive bureaucracy needed to certify the carbon content of different goods imported from different factories in different countries, but also because such a tax would be a dangerous weapon in the hands of America's growing gang of protectionists.
The people who worry most about the costs of trying to constrain carbon emissions are the very ones demanding protectionist measures. But if those measures are passed, America risks something far costlier than a switch to cleaner energy: a global trade war.
I can understand their concerns. What I wonder, though, is if they would be OK with a measure that achieves the goal of encouraging green production abroad in a slightly different way. Imagine if a state (say, California) passed a law offering an exemption from state sales tax if it could be shown that the goods in question had been produced in a manner that involved a low level of carbon emissions. The effects on (some) foreign producers are likely still there, but they are now less explicit. Would that still risk a "global trade war"?