Wednesday, June 25, 2008

India worried about carbon tariffs from the European Union

This article from yesterday's Economic Times of India entitled, "Exports to Europe may trip on carbon barrier", shows why Canada should be prepared to have carbon taxes. The article begins with:

"Indian goods being exported to the European Union may face higher barriers if the 27-member grouping goes ahead with a proposal to place a carbon tax on goods imported from advanced developing countries."

Of course, all is not cut and dry. The article notes that a bilateral agreement between the EU and India contains a national treatment clause which says that, "bilateral trade partners have to treat goods from partner countries in the same way as goods originating from the home country." The problem, I think, is that, because the EU's cap and trade system awards credits for free, and does not auction them off, it could be argued that goods orginating in the EU do not pay all of the carbon burned in the fossil fuel energy that goes into their manufacture. In addition, some EU countries have their own carbon tax, but some do not.

If Canada had a carbon tax, then exports to the EU would not be faced with a carbon tariff.

The take-home message is that carbon tariffs are coming. You can pay them to a foreign government or you can pay them to your own government (which, in the Green Shift plan, is going to return it to the people in direct tax breaks). Let's get ready.


The Mound of Sound said...

I believe we need carbon tariffs on imports AND exports. If China is going to flood our markets with cheap products that owe their competitiveness, in part, to a refusal to curb GHG emissions, tariffs could take away that incentive. The same for exports. If Canadian producers, and yes I do have the tar sands in mind, choose not to spend that portion of their profits necessary to clean up their operations, take away their incentive also - at the border.

This is not about goring the Sacred Cow of global free trade. You could actually say it restores balance to free trade by preventing those who spurn the cost of cleanup from exploiting their savings in competition with responsible producers.

tedhsu said...

Hello Mound of Sound,

I agree with what you say about "restoring the balance to free trade". If we took away the advantages derived from lax pollution rules or lack of certain workers' rights in certain countries, then free trade would work better.

As for your point about carbon tariffs on exports, I think the way you would implement it would be to have a domestic carbon tax, and then not refund the tax on exports. I think it's a good idea but there needs to be more debate on whether this is desirable or not, because a large chunk of Canada's greenhouse gas emissions comes from the production of goods for export.

Thanks for bringing up this point.

Steve said...

Unilaterally applying tariffs to goods from other countries risks setting off a trade war.

The carbon footprint of a typical European is many times that of a typical east Indian. This is nothing but thinly disguised protectionism. If the Europeans, or indeed St├ęphane Dion's Liberals, go ahead with this, they risk rolling back the benefits of decades of trade liberalization.

The real solution to this "problem" is to get India and China to fully participate in an international agreement on carbon. Kyoto is not that agreement. They will never accept the developed world dictating caps that leave their people at carbon levels that are a small fraction of the people in the developed world.

I would suggest that it would be more fruitful to pursue carbon-intensity targets if we are to get them on side. Stephen Harper has that right.

tedhsu said...

Hello Steve,

A couple of replies:

1) Trade is good because both parties can gain from it. But that simple view doesn't apply when there is a negative externality. In the case of trade which increases greenhouse gas emissions(or other pollution), there is a price to be paid by future generations, and those future generations are not free to influence trade in the present. We have to look out for future generations that are not yet born, and putting a price on carbon, including possibly a carbon tariff, is a little step towards that.

2) China and India are parties to Kyoto. At Kyoto we all agreed that, in cutting emissions, they don't have to cut back to 'third world' levels of the 1980's. Instead the biggest emitters, who became properous while emitting most of the excess CO2 in the atmosphere right now, have to cut first and lead the way. In the next round of reductions, China and India will be looking at reducing their greenhouse gas emissions, but we can get those and other developing countries to do that only if we make a decent effort ourselves.