Trump Has Exposed Corporate America to a Carbon Tariff
Putting aside the issue of catastrophic global warming for a minute, let’s look at a very possible consequence of the U.S. withdrawal from the Paris Agreement – retaliatory measures from other nations in the form of a carbon tariff on American products.
Well, there goes the planet.
Trump’s withdrawal from the Paris Agreement has dominated the headlines all weekend, and rightly so – it’s regarded by many as the most devastating decision of his presidency so far.
Rather than dwelling on what has already been covered – the diminishment of U.S. moral leadership, short-termism, isolationism and the rejection of science – let’s examine the very real threat of economic countermeasures from other nations.
The idea of a carbon tariff was first suggested by former French President Nicholas Sarkozy in November last year. “[If Trump] won’t respect the conclusions of the Paris climate agreement … I will demand that Europe put in place a carbon tax at its border, a tax of 1-3 per cent, for all products coming from the United States, if the United States doesn’t apply environmental rules that we are imposing on our companies.”
Writing for Forbes last week, London Business School’s Ioannis Ioannou suggested a similar course of action:
“Countries and transnational institutions should seriously consider and carefully evaluate potential sanctions or economic countermeasures. A tax or import tariff on U.S. made products and services would account for carbon emissions used in the manufacturing process or, more ambitiously, incentivise leading companies to move parts of their business out of the U.S.”
Leading U.S. CEOs alarmed
As part of a last-ditch plea from Corporate America to dissuade Trump from his decision, an open letter was published last week in Washington, D.C. newspapers and signed by companies including Apple, Google, Facebook, Microsoft and Unilever. Amongst the warnings listed in the one-pager, the risk of retaliation was called out:
“Withdrawing from the agreement will limit our access to [clean technology markets] and could expose us to retaliatory measures.”
It’s not just the dot coms who have come out in support of the Paris Agreement. Oil giants ExxonMobil and ConocoPhillips made the case that the U.S. would be much better served by having a seat at the table to “safeguard its economic and environmental best interests” – i.e. retain a veto – in future climate negotiations.
The fairness argument
Trump used the word “fair” and “unfair” multiple times in his speech:
“The bottom line is that the Paris Accord is very unfair at the highest level to the United States.”
“…Negotiate our way back into Paris under the terms that are fair to the United States and its workers.”
“…Under a framework that is fair and where the burdens and responsibilities are equally shared …
“We want fair treatment for its citizens and we want fair treatment for our taxpayers.”
The decision to withdraw, however, means the U.S. will have the fairness argument thrown back at it. As trade partners including Canada, Mexico, China and the EU implement carbon trading systems and caps, resentment is likely to grow towards the world’s second-largest emitter of carbon dioxide. For countries looking to address this disadvantage, a carbon tariff would serve to level the playing field.
Dirk Forrister, International Emissions Trading Organisation president and CEO, made the point that the Paris Agreement was designed to avoid this situation from occurring:
“The notion of a trade battle over climate change is something everyone’s tried to avoid for two or three decades. That’s why we have an international agreement to put everyone in the same frame.”
Here’s the good news
Trump wants to renegotiate his way back in. While Trump’s apparent willingness to re-enter the Paris Agreement on American terms shows some promise, it may not be possible. Christiana Figueres, the former UN official who led the negotiations, said this isn’t how international agreements work. “You cannot renegotiate individually,” she said. “It’s a multilateral agreement. No one country can unilaterally change the conditions.”
Other nations are rallying: There has been some commentary after Trump’s announcement that the Paris Agreement is actually stronger without U.S. participation. While many of the arguments inevitably read like sour grapes, two points ring true: firstly, the announcement appears to have strengthened the resolve of other nations to meet their targets. International leaders are lining up to not only condemn Trump’s decision, but to reaffirm their commitment to the Agreement.
Secondly, the Trump Administration’s rollback of domestic climate policies, including gutting the Green Climate Fund and hobbling the EPA, means that the U.S. was highly unlikely to meet its climate targets anyway. Australian International Relations and Environmental Policy export Luke Kemp argues that this would have set a poor example: “Other countries [would have been] more likely to delay or free-ride on their pledges if they [saw] the US miss its target.”
U.S. states, cities and corporate leaders are embracing a low-carbon economy, despite (or to spite) Trump. Examples include Californian leadership in reducing emissions, and the Mayors of 61 cities across the U.S. pledging on Thursday to meet commitments agreed to under the international accord.
The transition to the renewable economy is gathering pace. The economics of higher energy efficiency, falling renewable energy prices, abundant natural gas, and the rise of electric vehicles and smart grids will continue to displace coal and oil.
November 3rd, 2020: The rollback of the Paris Agreement and other climate initiatives will take years, as will any retaliatory measures (such as tariffs) put in place by other nations. Could the 2020 election become a referendum on the Paris Agreement?
Image: Shutterstock
