Industry Today: The World of Manufacturing

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 Date:7/20/2009

 

Wake Up Call
Constrained Momentum
Alan Tonelson discusses cap and trade, and whether an ideology intent on saving the planet will mean harsh economic consequences for U.S. competitiveness.

The case for the climate change bill pushed by President Obama and passed by the House on June 26 just gets curious-er and curious-er – and not in a good way. For example, the bill’s proponents have just done an almost complete about-face on the biggest question raised by the legislation for domestic manufacturers: whether the cap and trade system central to its plan to reduce America’s greenhouse gas emissions will cripple their competitiveness. At the very least, if the pitch for the American Clean Energy and Security Act has a shelf life this short, how much faith can be justified in the green blueprint it represents for making over the entire economy?

Even worse, signs abound that the cap and traders’ main economic arguments is degenerating into one of the oldest rhetorical tricks in the business – pretending to solve a problem by literally defining it out of existence.

Certainly many domestic manufacturers view cap and trade as a near-death sentence, at least for their U.S. operations, or as an invitation to offshore jobs and production. In a world where major industrial players like China have no international obligations whatever to cut emissions, they doubt that U.S.-based manufacturers can keep up if precious time and resources must be spent reducing their carbon footprint. Moreover, equally precious capital must be used to buy carbon permits as long as they continue emitting the gases.

They also wonder how U.S. industry can compete as long as consumers have the option of buying relatively cheap industrial goods from countries with no emissions limits instead of their Made in America counterparts – whose prices would need to be raised to maintain profits in the face of higher carbon costs.

The cap and traders’ early responses were all over the lot. Some claimed that the magic of the marketplace, fueled by the ingenuity of the emissions trading system, would by itself bring forth gigantic climate-friendly industries to replace and/or green-up today’s supposed dinosaurs. Using a problematic example to be sure, the Environmental Defense Fund, for instance, has promised that: “The scale of our new energy economy will dwarf the Internet boom.”

Others, mainly connected with organized labor, have always understood that some equalizer like a tariff would be needed to offset the cost advantages that the current international climate change regime would hand to countries with no emissions limitations.

As the climate change bill slogged through the House, yet another answer burgeoned in importance. The legislation’s masterminds attempted to buy off many affected industries by offering them substantial freebie carbon-emitting permits for 20 years (after which the emissions reduction boom really gets lowered). Heavy emitting industries are also given the option of partly “offsetting” their carbon footprints by funding projects that reduce global carbon levels.

Of course, the cap and traders’ responses and emphases have fluctuated with circumstances – and particularly with the audiences they’re addressing at any given moment. But once the bill passed the House, another big change began emerging. Globalization enthusiasts in the administration (especially the president) and the Senate launched a low-profile but determined campaign to kill the carbon tariff that the House surprisingly added to the legislation. But they also seemed to lose all their professed faith that domestic industry had nothing to fear from a world half bound by carbon limits and half free to emit.

One proposed solution to the resulting dilemma? Simply negotiate a comprehensive agreement at the Copenhagen environmental summit this year that would set up a new global regime for handling climate change-related trade issues. As the bellwether New York Times editorialized, the world’s leaders should reach agreement on “trade-related enforcement measures” aimed at advancing environmental and climate change goals, and “on commitments on emission reductions all around, as well as financial aid for poorer countries, like India and China, to meet the caps without sacrificing economic growth.”

Trouble is, those are exactly the issues – especially “emission reductions all around” – that have stymied negotiators for years. If President Obama and other cap and traders have a realistic strategy for bridging deep, longstanding gaps on shared global emissions cuts, they’ve inexplicably been hiding it. Much more likely, they’re responding to the glaring lack of worldwide consensus on tackling climate change by pretending that holding or attending a conference on the subject is tantamount to solving the problem. For some mysterious reason, apparently, entering a room will automatically dissolve the clashing national interests that have created the current impasse.

And conveniently, this conference won’t take place until after the short deadlines pressed by the cap and traders for signing into law some version of the American Clean Energy and Security Act. Thus, U.S. negotiators would head to Copenhagen legally stripped of unilateral options and therefore lacking any bargaining chips. It would be impossible to imagine a better recipe for ensuring that U.S. interests get ignored or trampled.

Actually, the president and other cap and traders have outlined what they consider to be a strategy: securing for America the moral high ground crucial for forging an equitable global agreement. In other words, armed with a new climate change policy, President Obama will literally be able to shame developing countries in particular into accepting some emissions cuts of their own.

The cap and traders, however, should at least have the decency to acknowledge that they bear a very heavy burden of proof – especially because developing countries continue insisting on their God-given right to pollute and emit their way to prosperity, just as they argue the wealthier countries have before them.

Maybe this third world stonewalling is simply hardball negotiating tactics. But maybe developing countries have concluded – with good reason – that the United States ultimately will cave. Maybe they remember the text of the last G8 summit scant weeks ago, which reaffirmed “the principle of common but differentiated responsibilities” between rich and poor countries for dealing with climate change – diplomatic shorthand for letting the latter off the hook. Maybe they heard Commerce Secretary Gary Locke’s endorsement last week of China’s position that “it's our own consumption activity that's causing the emissions of greenhouse gases [and] quite frankly Americans need to pay for that." Locke has since recanted, but maybe they have decided that his original views, plus continued opposition by Obama and many Senators to unilateral U.S. trade sanctions, add up to a U.S. strategy of elegant, articulate surrender.

The cap and traders’ record so far on trade, manufacturing, and climate change isn’t proof positive that the skeptics are right, and that the president and his allies are bent on imposing an ideologically driven agenda on the United States and damn the economic consequences. But evidence supporting that charge keeps mounting at least as quickly as they claim the earth is warming.

Alan Tonelson is a Research Fellow at the U.S. Business and Industry Council Educational Foundation in Washington, D.C.. A contributor to the Council’s AmericanEconomicAlert.org Web site, he is also a consultant to CNN anchor Lou Dobbs and the author of The Race to the Bottom (Westview Press, 2000). The views expressed here are his own.