Carbon border taxes could be brought out of the freezer

By Lorraine Mallinder

Date: 09/12/04

Back in the days when the Kyoto Protocol was still lying in the bottom tray of the deep-freeze with a long-forgotten bottle of Stolichnaya 100% proof vodka, the notion of imposing EU border taxes on carbon intensive products seemed like environmental suicide to some. But now, with Russia back in from the cold and the world in the microwave, things might have changed.

The idea of border taxes, proposed almost exactly a year ago by the London-based think-tank, the New Economics Foundation (NEF), is based on the premise that under the rules of the World Trade Organization (WTO), the production costs avoided by countries that have not signed up to the Kyoto Protocol could be seen as the equivalent of a trade-distorting subsidy warranting sanctions.

The then trade commissioner Pascal Lamy rejected the idea when the EU was still in the process of seducing Russia into signing up to Kyoto. In a letter sent in July to the Green MEP Caroline Lucas, he pointed out the need for consensus through dialogue while Putin was speeding up activities to ratify the Kyoto Protocol. But he added that it would be relevant to "keep under review the scope for action under WTO rules to 'level the playing field'".

With Russia now on board, the idea has once again started to gather momentum, particularly since the US election, says NEF policy director Andrew Simms. According to Simms, "there has been a strong interest both from member states and the European Commission, not to mention people in the international community who have become frustrated with the US".

He added: "The EU now feels within its rights to pursue new avenues, to consider what other levers are available to put pressure on non-Kyoto countries to iron out the economic anomalies which would emerge through some not pursuing targets."

For once, the interests of the business community and environmentalists coincide.

Daniel Cloquet, director of industrial affairs at the European employers' organization UNICE, told European Voice: "There is a need to consider strategies to protect European business against the competitiveness handicap that will be created by fulfilling the Kyoto obligations."

UNICE has not yet taken an official position on sanctions, but Cloquet said: "In some industry circles, I see individual companies from time to time raise the question of whether it would be an unavoidable approach. Some companies are now asking, should we not have a border tax since we pay more for energy and other countries do not have these constraints?"

Jan Kowalzig, a spokesperson for Friends of the Earth Europe, said: "Rather than lobbying against effective action on climate change, industry sectors should be calling for the introduction of import taxes on energy-intensive US products as long as it refuses to ratify the Kyoto Protocol. That way, the US government may eventually feel pressured by its own businesses to join the rest of the world in fighting climate change."

It might seem an enticing prospect. Perhaps it would be worthwhile for the EU to engage in a bit of sabre-rattling if that is what it takes to bring the US back to the negotiating table. Ironically, the US fought during negotiations at the United Nations for a market-based scheme for reduction of greenhouse gases similar to that now being pioneered by the EU. The initial idea for an emissions trading scheme, in which industries would trade a limited amount of emissions allocations among themselves, was staunchly opposed by the EU before the US walked out on Kyoto.

"Everything is pointing to the fact that sooner or later we will see this being raised as a serious option," said Simms. "The general comment has been that this is a case of when, not if. The ideal is that it would make the US realize the foolhardiness of the path they are taking."

This issue may be yet another test of Trade Commissioner Peter Mandelson's loyalties. Mandelson faced intense scrutiny from the European Parliament over his neo-liberal, Atlanticist tendencies and is already under pressure to defend the EU's Common Agricultural Policy, against the wishes of the UK government. Its Prime Minister, Tony Blair, is now pledging to put climate change at the top of the agenda when the UK assumes the presidencies of the G8 and EU. If he is unable to make progress, then the last resort of environmental sanctions might have to come out of cold storage.

Article discusses the idea of introducing border taxes on carbon intensive products as a means of sanctioning states that have not signed up to the Kyoto Protocol