Economists Warn of a Climate Trade War

In the wake of the failed climate change summit in Copenhagen, countries are talking about imposing carbon tariffs on imports. Bad idea, say trade experts

By Markus Becker and Christoph Seidler

John Kerry was on a roll. At the Copenhagen climate summit, the former US presidential candidate delivered a fiery speech that was mostly directed at China. If the US has to accept binding targets for reducing their greenhouse gas emissions, then Beijing must do the same, Kerry told his audience. Workers in the US should not "lose their jobs to India and China because those countries are not participating in a way that is measurable, reportable and verifiable," he said.

This was an expression of the old fear in industrialized countries that aggressive action on climate change could lead to local economic disadvantages. Environmentalist politicians and academics have long been calling for the establishment of a global emissions trade. It is a simple and captivating idea for many: Each state gets a certain amount of CO2 allowances. Those who want to emit more must buy emissions rights from other countries that emit less CO2. Ideally, poorer countries would automatically make money, and rich countries would at the same time have a financial incentive to reduce their CO2 emissions.

However, such a system would only work if all states participated—and industrialized countries for years have feared that just won't happen. In particular, large emerging economies like China and India could blow off climate protection and give their businesses competitive advantages in the global market. The failure to reach an international climate change agreement in Copenhagen has done little to dampen such worries.

Kerry and Sarkozy Threaten China and India

Now, Western politicians are getting more open with threats to make the most CO2-intensive imports more expensive—with the help of punitive tariffs. If the West protects the environment, Senator Kerry said in Copenhagen, then climate sinners will not "dump high carbon intensity products into our markets." Kerry's thinly veiled threat: In this case, "I speak for the United States." According to a report in the New York Times, the Americans even tried to accommodate the possibility of unilateral penalties in the final document out of Copenhagen, but without success.

Yet such sentiments in Europe are getting louder, particularly in Paris. French President Nicolas Sarkozy has repeatedly called for EU punitive tariffs on products from big emitters, should no agreement come from Copenhagen. Now that this has occurred, the question is how serious Sarkozy is about the issue. He had said that the French were working together with Germany on such plans. A German government spokesperson said Berlin was examining ways in which locational disadvantages for business could be prevented.

The response sound reserved, but was still much more positive than earlier statements made by government officials in Germany. Previously, the Germans had always categorically rejected Sarkozy's punitive tariff idea. Even in July, Matthias Machnig, then a state secretary in the Environment Ministry, described Sarkozy's proposals as "eco-imperialism."

China Will Remain the Workbench of the World

Experts, however, warn strongly against eco-punitive tariffs. Ottmar Edenhofer, environmental economist at the Potsdam Institute for Climate Impact Research (PIK), sees them as more of a threat than a realistic option. Measured by the carbon dioxide emissions incurred in the production of goods, China is undisputedly the world's largest emitter of CO2. Punitive duties would hardly change that. "An adjustment of tariffs would likely never be high enough to substantially alter the demand in the West for goods from China," says Edenhofer. "China will remain the workbench of the world."

Punitive tariffs would therefore have almost no environmental impact, but would come with enormous risks. On one hand, the decrease in imports from China would likely weaken the US economy. "In addition, the Chinese could respond with counter-measures, of course," says Edenhofer. China could—in theory—squander US Treasury securities and make the country's economy vulnerable.

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