With the European Union proposing higher carbon reduction targets – moving from a 20% to 30% cut over 1990 levels by 2020 – the issue of border adjustments is resurfacing. Border adjustments are taxes imposed on goods imported from countries with less stringent greenhouse gas controls. They are a tool that is being widely considered by countries that are leery of the competitive disadvantage their regulated industries may bear in the face of ever-stricter, unilateral carbon controls.
Proposed US climate and energy legislation has consistently included a border adjustments provision, which in the US is considered necessary to pass climate laws through its legislature. It has been criticized as protectionist trade policy thinly veiled as green action, but the issue of carbon leakage is a very real one. The proposed measure has been the impetus behind Canadian Environment Minister Jim Prentice’s insistence that Canada move “in lock-step” with US regulations. With identical regulations, Canadian industry would avoid the punitive border adjustments.
But some Europeans are wary of such propositions because they possibly contravene of World Trade Organization rules. They fear that border adjustments would spark retaliatory protectionist policies and lead to diminished world trade, which they claim is good for nobody. Analysis of the issue shows that border adjustments could be acceptable under some interpretations of World Trade Organization rules, but other interpretations suggest otherwise.
As the gap in imbedded carbon widens between goods produced in Europe and elsewhere, the call for border adjustments is growing louder. Both French President Nicholas Sarkozy and Italian Prime Minister Silvio Berlusconi wrote to the European Commission earlier this year insisting that border adjustments be considered. If the US passes climate legislation that includes such a clause, it will be difficult for ardent free trade enthusiasts in Europe to maintain their resistance to similar measures. It could also mean that Canadian goods heading to Europe would be scrutinized for their carbon content. With Europeans buying a growing share of Canadian exports, it behooves domestic companies to keep an eye on their emissions lest they be checked at the border.
By Jeff Beyer, .(JavaScript must be enabled to view this email address)
