Unfair trade barriers will hinder climate consensus

Unfair trade barriers will hinder climate consensus

Carbon border agreements are in many ways modern instruments of imperialism that punish developing nations for making slower progress towards greening their economies

Attention on climate change has been reinvigorated with 26th Conference of Parties to the United Nations Framework Convention on Climate Change (COP26) scheduled for November in Glasgow. The European Commission, in the run-up to COP26, has released the European Green Deal in December 2020 and has set a deadline of March 2021 to propose the first-ever European Climate Law.

This deal is a statement of intent on part of the European Union, which aims to reach its goal of carbon neutrality by 2050. A careful reading of this presents some worrisome plans.

Increasing EU’s climate ambition for 2030 and 2050 is a key factor in transforming the EU’s economy for a sustainable future. As part of this, the document outlines plans to implement a carbon border agreement.

What are carbon border agreements?

While emissions trading systems and domestic carbon taxes have long existed as a way to impose carbon cuts on industry and consumers, the extension of protectionist tools to cross-border systems is still new in the space of climate policy.

The imposition of carbon border agreements is being justified as a means to ‘avoid a carbon leakage from less determined nations who are likely to continue depending on fossil-fuel based energy sources’, citing their potential to frustrate the EU's carbon neutrality goals.

The narrative of a policy for taxing cross-border carbon flows is also one that found favour in the United States with President Joe Biden and Senator Elizabeth Warren supporting the idea during the election campaign.

In the simplest terms, a carbon border adjustment (CBA) is a tax on imported goods such as steel or cement, where the amount of tax depends on the carbon emissions associated with the production of those goods.

Western countries believe this will ‘nudge’ developing countries to transition away from coal faster, ensuring global targets are also met. It also argues that non-carbon emitting products, which are likely to be more costly, will suffer if forced to compete with cheaper, carbon-based products.

What they forget, is that transition to coal may not be a matter of choice for most countries.

Unfair to developing countries

The US, in 2016, won a case at the World Trade Organization against India’s domestic-content requirements in the production of certain goods — a rule that required solar project developers to buy equipment from domestic manufacturers.

It termed this requirement as discriminatory and a hindrance to the virtues of globalisation and globally connected seamless markets. It outright termed the Indian stance as protectionist. However, these notions seem to break down when it comes to their own policies.

Carbon border agreements are in many ways modern instruments of imperialism that punish developing nations for making slower progress towards greening their economies.

Colonial-mercantilist policies in the 20th century ensured that manufacturing markets were set up in Bangladesh, Vietnam and India, to shift pollution overseas and capitalise on cheaper labour.

CBAs clearly violate the principles of equity, fairness and differentiated capabilities as enshrined in the Paris Agreement and could have serious implications for fair trade and transfer of technology. The world needs growing economies to act on their carbon cut plans seriously, and subjecting developing nations to protectionism will only isolate them further.

Climate-based trade barriers are often regarded as a veiled attack on China, who, despite scaling its domestic environmental progress, continues to promote and develop thermal power-based plants abroad as part of its Belt and Road Initiative (BRI).

An unusual hero back home, China has drastically increased the share of renewables in its energy mix but its banks are funding 72 per cent of the total coal power plants being constructed across the world as part of the BRI.

Keeping in mind the net-zero emissions announcement and China’s readiness to take on leadership in this area of policy, the West always hopes that they can use their trade instruments to pressure President Xi Jinping into conforming.

Similarly, Japan is building the Matarbari Ultra Super Critical Coal-Fired Power Project in Bangladesh for $700 million. The Green Climate Fund itself has accepted this as part of its climate finance portfolio.

Until very recently, the World Bank still financed a whole range of fossil fuel-based energy activities in low-income countries and most of the coal plants there are connected to larger corporations having roots in the West.

A report also highlighted that in 2015 alone, Group of Seven countries provided $2.5 billion for coal finance, despite new commitments to limit export credits for the same.

Globalization, where we need it the most

It is entirely unfair and hypocritical to impose carbon border taxes on countries where their own corporations are fuelling the growth of carbon-based power plants. Further, this will make trade with the EU very expensive for developing nations for whom the transition away from coal is far tougher to undertake.

It is evident that larger economies in both the East and the West are visibly comfortable with funding coal-powered plants and cushioning domestic energy giants, as long as the emissions are not within its own territory. Carbon border agreements will, once again, add to the burden of smaller economies. If allowed to take the shape of national policy in the EU, this will not be any different from a sanctions regime.

This route of bullying will jeopardize the work so far on building equitable and coordinated climate action plans and agreements. The distinctive feature of climate action is the very nature of the fight — shared burdens can only be surpassed with transparency and cooperation.

This is the point when technology transfers and global or regional alliances are all the more needed, they would promote inclusivity which always brings better outcomes.

Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth. 

Down To Earth