COP21 must address the trade cost of carbon pricing: Don Pittis

Adding the price of carbon to everything a country produces is disruptive and expensive. That means countries taking the lead to save the world from climate change could face a serious trade disadvantage.

Tackling the thorny problem of levelling the international playing field

A level playing field is important in international trade, just as in sports. Some say the only way to encourage countries to cut greenhouse gases is to levy carbon tariffs on laggards. (Reuters)

This story is part of a package of special coverage of climate change issues by CBC News leading up to the United Nations climate change conference (COP21) being held in Paris from Nov. 30 to Dec. 11.

When we lived in a hilly part of Belgium, the kids at our local school played soccer on a field with a pronounced slope from one goal to the other. It always made me think of the "level playing field" in international trade.

As world leaders struggle to negotiate new cuts to greenhouse gases in Paris at COP21, one of the stumbling blocks is that when it comes to trade, countries making the biggest cuts in carbon output are always playing uphill.

If they really want to cut carbon, delegates must begin to address that problem.

That the problem is obvious does not make it easy to solve. When one country imposes strict limits on carbon, whether through taxes or regulation, the cost of doing business in that country rises, at least in the short term.

Trade comes first

Russian leader Vladimir Putin, for instance, has taken a skeptical view on climate change, an opinion shared by much of the media in that fossil-fuel-dependent country. So what happens if Alberta adds a carbon tax of $30 a tonne by 2018 as it has promised while Russia does nothing?

James Coleman at Calgary's Haskayne School of Business points out that carbon is different from localized forms of air and water pollution, because carbon dioxide is a globally distributed pollutant.
Russian President Vladimir Putin has said he doesn't believe human activity causes climate change. Taking no action would give Russia a trade advantage over places like Alberta, which has committed to a carbon tax. (Reuters)

"If oil production just moves from Canada to Russia, there's no advantage for Canada," says Coleman.

It is very possible that in the longer term, developing new technology to replace fossil fuels will make advanced economies more efficient and successful. 

But in the medium term, countries that are climate leaders bear the cost of switching away from cheap and familiar power sources such as coal.

That gives the laggards an advantage. Their industries can sell their products at lower prices on world markets. With the current state of the world economy, that matters. And currently there is no trade law to fix it.

"The problem historically was that the trade people didn't want to have anything getting in the way of their objective, which was to put trade priorities first," says Gus Van Harten, a specialist in international trade law at Toronto's Osgoode Hall Law School.

Carbon tariffs?

He says trade laws actually conflict with green laws. Large corporations have used trade agreements to challenge environmental rules, suing national governments for losses caused by environmental, health and labour laws.

Van Harten says a first priority will be an international treaty superseding such trade challenges in the case of domestic laws intended to cut greenhouse gases. 

Based on Van Harten's research, the European parliament has voted to include such a rule in clause 80 of its formal demands at COP21.

Van Harten says there is no legal reason negotiators at Paris couldn't go much further, writing trade agreements that link greater access to international trade to performance in meeting climate targets. Using trade rules would be highly effective, he says, because trade and investment laws are more strictly enforced than other international agreements.
A worker unloads coal in the northern Indian city of Chandigarh. India's coal demand is growing as it strives to produce enough electricity for its growing economy. But India's carbon output per person remains much lower than in developed countries. (Reuters)

The ultimate result might be to put tariffs on a country's exports if a lot of carbon went into making them

Coleman says the complications of using trade laws to impose carbon tariffs remain enormous. Determining the exact carbon content of another country's products means examining the entire production chain and could lead to massive disputes and years of litigation. 

"It's a very complicated scientific problem and in the few places where it's been adopted, it often ends up being a guise for protectionism," says Coleman. Nevertheless, Canada has signed on to the UN's standard way of calculating carbon use without which climate targets would be meaningless.

Cheaters prosper

Coleman says the whole process of measuring carbon for trade purposes remains political. For instance, while India continues to expand its use of coal, it quite reasonably claims its historic contribution to global carbon is dwarfed by that of the industrialized West. 

Developing countries with low carbon output per person claim a simplistic carbon tariff would be unfair. Carbon policy, even among carbon leaders, is littered with exemptions for their most important industries. Other countries claim to be hitting carbon targets when the reason is only that their economies have weakened.

Complexity by itself is not necessarily an issue, says Coleman. We use complex policies all the time.

"The problem is when you marry a complex policy with a strong protectionist impulse that we know exists in every country." 

The countries attending COP21 must face the fact that they need to add teeth to international carbon limits. In a weak global economy when everyone depends on their trade advantage, they must begin developing a set of rules to level the playing field.

Because when it comes to cutting carbon, no one will play ball when only cheaters prosper.

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​More analysis by Don Pittis


Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.