Wednesday, July 01, 2009

Climate change: a border tax

The US's emissions trading legislation passed the House last week, but in the process it gained a sting in the tail: a border adjustment tax aimed at punishing countries which do not do enough to fight climate change:

The House bill contains a provision, inserted in the middle of the night before the vote Friday, that requires the president, starting in 2020, to impose a “border adjustment” — or tariff — on certain goods from countries that do not act to limit their global warming emissions. The president can waive the tariffs only if he receives explicit permission from Congress.
President Obama opposes this because he sees it as a threat to free trade. The WTO disagrees.

The bill has not yet been approved by the Senate, but if it is and this section survives, there are two important consequences for New Zealand. Firstly and most obviously, it means we have to actually get our shit together and impose a solid price on carbon by 2020 (something which isn't certain judging by our past failure in this area). Otherwise the US - our second biggest export market after Australia, and our second biggest destination for agricultural exports after Europe - will impose one for us on everything we send them. And secondly, it blows the whining from polluters (and particularly from the agricultural sector) about how their competitiveness is "at risk" if they have to pay for their pollution out of the water, because any inequities will be resolved at the US border. Everyone will pay for carbon; its just a question of who they pay.

The US is just one country - but it is an important one, and if it adopts a border adjustment tax, others will surely follow suit. It has been a hot topic in Europe for a few years already, and if they do likewise, then the problem of "carbon leakage" and international competitiveness will be solved overnight.