China and India lashed out on Friday at the possibility of tariffs slapped on carbon-intensive exports, even though analysts said proposed U.S. measures were years away and would be hard to implement.
Green protectionism is likely to cause unease at next week's G8 meeting in Italy and separate 17-member Major Economies Forum gathering. It is also a growing concern in U.N. talks that aim to seal a broader climate pact at the end of the year in Copenhagen.
China, the world's top greenhouse gas emitter, said carbon tariffs would violate the rules of the World Trade Organization as well as the spirit of the U.N.'s Kyoto Protocol.
Carbon tariffs would seriously hurt the interests of developing countries and disrupt the order of international trade, the Ministry of Commerce said in a statement posted on its website.
While it did not directly refer to the United States, China's comments come a week after the lower house of the U.S. Congress passed the Clean Energy and Security Act, also known as the Waxman-Markey Bill, which includes so-called carbon equalization provisions that could kick in from 2025.
The measures are meant to give rich nations a way to protect their domestic industries that fear putting a price on carbon emissions will make their goods more expensive compared with exports from developing nations. Some industries also fear jobs and energy-intensive manufacturing could shift to poorer nations.
We are completely surprised and rather dismayed by the development. This is an attempt to bring trade and competitiveness into environmental negotiations, a top Indian climate negotiator said in reference to the U.S. legislation.
The steps in the Waxman-Markey Bill would involve raising duties on imports from countries that are not making the same effort to cut emissions and would focus on goods such as cement and steel, which need a lot of energy to make.
This is the quid pro quo for cap-and-trade, but the international community can't be held down by the domestic political compulsions of President Obama, said the Indian official, who did not want to be identified because he was not authorized to speak to reporters.
Obama said last week he was not in favor of climate-linked protectionism.
LEVEL THE PLAYING FIELD
Concerned their efforts to curb greenhouse gases would put their industries at a competitive disadvantage, the United States, Canada and the European Commission have all put forward proposals to level the playing field.
Under the U.S. bill, which still needs to pass the Senate, a U.S. cap-and-trade scheme would start in 2012 and the most trade-sensitive sectors would be given emission allowance rebates to cover the costs of complying with the carbon trade scheme. Those rebates will last till about 2025.
By mid-2022 the president must decide how to tackle competitive concerns after 2025 and would examine whether competitor nations have agreed to emissions reduction targets, energy intensity targets or steps such as sectoral caps or export tariffs that place a price on carbon.
The idea is to give India and China and other major developing nations time to enact climate-friendly measures.
I think generally they're using this as a means to pressure developing countries to take stronger action on emissions, said Zhang Haibin, a professor of environmental politics at Peking University and an adviser to the Ministry of Commerce on trade and climate change policies.
But if the United States takes unilateral action without proper multilateral consultations and agreement that could spark big trade disputes, a trade war even, he said. That kind of clash comes at a sensitive time in the world's battle to slow climate change, with this December's meeting in Copenhagen seen as a pivotal moment.
This is completely unacceptable. It will completely derail the Copenhagen process, which is already at a complicated stage and completely gridlocked right now, said Sunita Narain, head of New Delhi-based Center for Science and Environment.
But some experts say the risk of such measures is small, given the logistical complexities involved.
If you look at real life, how is it going to be implemented? That's going to be a very complicated matter. I'm not sure people have thought clearly, technically how to make this happen, said Changhua Wu, Greater China Director of The Climate Group, an NGO that helps governments and companies trim carbon emissions.
In the meantime, there are other stakeholders in the U.S., big companies that operate in China and India. They have their opinions as well. So it's going to be a very complicated picture, she added.
Ultimately, the measures could accelerate the development of domestic carbon exchanges in emerging countries, which have thus far sold most of their carbon abatement tariffs internationally.
If the Senate approved similar legislation before December, the likelihood of domestic carbon pricing being introduced in Asia potentially increases, said Simon Smiles, Asian thematic analyst for UBS in Hong Kong, who has studied the cost impact of domestic emissions trading and carbon tariffs on Asia firms.
I continue to see the political expediency of carbon-related import duties. But as the legislation currently stands, the near-term risk of border adjustments based on the amount of carbon in goods imported into the U.S. appears very low.
(Writing and additional reporting by David Fogarty)
(Editing by Ben Tan)