Published — Monday 3 December 2012
Last update 3 December 2012 6:49 am
LONDON: The European Union’s postponement from regulation of airline emissions outside its airspace takes carbon border tariffs off the international trade agenda.
Policymakers will have to go back to the drawing board on how to devise multilateral climate action in the absence of an elusive global deal.
The EU’s proposed action was the world’s first attempt to affect other countries’ climate policy, requiring airlines to buy permits accounting for their full flight emissions unless the country of origin had similar carbon controls as the European emissions trading scheme.
The EU’s executive Commission two weeks ago postponed implementation while it gave the UN’s International Civil Aviation Organization (ICAO) a year to try and agree a global deal.
But US President Barack Obama still signed recently a bill preventing US airlines complying with the law, underlining the political mileage from trade posturing even after the EU had delayed its action.
Climate change ultimately can only be tackled through multilateral action as a “global commons” problem where carbon emissions harm everyone, not just the polluter, and mitigation action similarly benefits the whole world including those who do nothing.
The term originates from the 1,000 year old problem of sharing land to graze sheep where each farmer only had concerns for his own welfare, and continued to feed his sheep even as the land became critically degraded and the grass was bitten down to the ground.
Both green groups and industry have concerns about using unilateral action to tackle the global climate problem.
Greens are worried about carbon leakage, where affected industry would simply move offshore to an unregulated jurisdiction and carry on emitting.
The industry side of the same coin is the competitiveness impact from tougher carbon controls at home.
There is evidence that carbon leakage is real in Europe, the main region to regulate carbon: for example western Europe’s consumption emissions — including the carbon content of imports — have risen since 1990 while its territorial emissions have fallen.
No country has yet tested whether border carbon tariffs would be eligible under the World Trade Organization (WTO).
Air transport is excluded from the WTO’s agreement on trade in services, meaning the EU action was always outside that formal trade agreement.
The EU has chosen not to impose border taxes on other commodities which are subject to the WTO, such as steel.
Instead it shields these sectors from competitiveness impacts by allocating them free emissions permits under its cap and trade scheme.
Politically, that gains favor with steelmakers but economists point out it does not counter carbon leakage: the affected companies could simply sell the free allowances and use the cash to move offshore.
A proposed US climate bill (the American Clean Energy and Security Act of 2009) also proposed to hand domestic industry free allowances, but held out the ultimate prospect of border taxes which would force importers to purchase allowances equivalent to the carbon dioxide emitted in their manufacture, exactly as the EU had planned for airlines.
“The US Customs and Border Protection, shall issue regulations ... requiring the submission of appropriate amounts of such allowances for covered goods with respect to the eligible industrial sector that enter the customs territory of the United States,” it said.
But the bill never passed the Senate, and so carbon tariffs remain untested.
The aim of carbon border tariffs is to affect the environmental regulations of other countries.
That idea got short shrift in the US regarding the country’s airlines.
“The Secretary of Transportation shall prohibit an operator of a civil aircraft of the US from participating in the emissions trading scheme unilaterally established by the European Union,” said the EU Emissions Trading Scheme Prohibition Act, as signed by Obama.
The rhetoric was more succinct.
“It never made a bit of sense for European governments to tax our citizens for flying over our own airspace,” said Democratic Senator Claire McCaskill, a co-author of the bill.
But trade officials gave the United States a similar riposte to its attempted ban on imports of Mexican tuna in 1991, on the grounds that their nets killed more dolphins than the US fleet.
“It’s against international law that internal regulations are applied to foreign countries,” said a Japanese official, as quoted in the New York Times, in support of the Mexican position.
The 1997 Kyoto Protocol on global warming failed to make explicit allowance for multilateral trade controls, and the matter is not discussed in negotiations for a successor climate agreement continuing in Doha, Qatar.
“We need a multilateral regime to guide climate-related trade measures,” said Harvard University’s Jeffrey Frankel in a 2009 paper, “Global Environment and Trade Policy.”
The problem is a lack of multilateral momentum to tackle climate change where Obama’s approval of an anti-EU bill is illustrative, as well as the snail’s pace of action under UN talks.
— The author is a Reuters market analyst. The views expressed are his own.