Blumenauer Says He Believes EU, US Can Coordinate on Carbon Border Adjustment
House Trade Subcommittee Chairman Earl Blumenauer, D-Ore., told an online audience that over the next four months, the U.S. government is going to set the stage for a trade program that supports environmental goals. Blumenauer, a longtime environmentalist, said he's not concerned that the European Union will dictate the terms of a carbon border adjustment mechanism, since its politicians have a head start. “We’ve had preliminary discussions, we’re going to have more,” he said during a webinar March 5 at the Center for Strategic and International Studies on environment and trade.
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David Victor, a professor at the University of California-San Diego and co-director of its center on international law and regulation, also spoke on the webinar, and he said he's concerned there will be a lot of trade conflict around carbon border adjustments. “A lot of actions on climate are expensive, they affect competitiveness, especially in energy intensive industries,” he said.
Warren Maruyama, a former general counsel at the Office of the U.S. Trade Representative, agreed. He said that if you tax carbon, or regulate it in a strict way, “It’s going to disadvantage energy intensive industries. Some face stiff import competition, or they're exporters or in some cases, both.” He gave steel, aluminum, chemicals, paper, fertilizers and cement as examples of energy-intensive industries, and said these are big, politically powerful industries that provide a lot of manufacturing jobs. So, as a result, “just about every politically viable carbon scheme contains some kind of border measure,” he said. He said it's not just politics, you also don't want to “inadvertently create incentives for energy-intensive industries to shift overseas.”
Blumenauer was more optimistic that the EU and the U.S. could coordinate their carbon border adjustment measures so neither punishes the other. “It’s in both our interests to be able to work this through,” he said. “I don’t minimize the problems; I lived through our cap and trade adventure ten years ago,” he said, but he thinks the developments over more recent years help policymakers to envision the lower-carbon future.
“We have made a commitment to reduce carbon,” he said. “We understand this is an ultimate existential threat we face. People understand that we are in fact running out of time.”
In response to our question on whether legislation or executive action would be the way to impose a carbon border adjustment, Blumenauer said, “Legislation is going to be a challenge this Congress. Make no mistake about it. There’s virtually no trust on Capitol Hill right now.”
But he added that corporate moves to acknowledge the costs of climate change and political activism will help.
“I think there are forces at work that are going to be generating momentum for us,” he said. “We will ultimately do something with the administration on a revised Trade Promotion Authority that will give a dimension to what we’re talking about. ... I just see these opportunities where people are actually doing things that are changing the facts on the ground where the politicians will be more inclined to run to catch up.”
Usually, a carbon border adjustment follows a carbon tax. When the two are paired, the action is World Trade Organization compliant. But the panelists said they see no possibility of a meaningful price on carbon moving in Washington.
“Sadly, it's not politically possible,” Blumenauer said. “Ultimately we will have a price on carbon, but we’re going to have to deal with innovation, trade agreements and whatnot before we get to carbon pricing.”
Maruyama, now a partner at Hogan Lovells, said, “If we can't reach a domestic political consensus in Congress on a carbon regime, our trade problems escalate dramatically. That’s because you can impose an additional fee on imports and rebate on exports, but all of that is tied to a domestic regime.”
Victor said both men are right: “The vision right now of an economy-wide tax high enough to be meaningful is magical thinking.” He said that using regulation and industrial policy and trying to convince trading partners that it's fair without a carbon tax will be messy. “But we ought to focus on the real world, not an imaginary world,” he said.