Industry Today: The World of Manufacturing

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 Date:1/18/2010

 

It's Your Call
It Was Never About the Weather
Copenhagen, argues William R. Hawkins, was more about governments using negotiations to gain economic advantages in an effort to shift wealth, technology and industrial capacity to their lands.

There were three major diplomatic poles at the UN Climate Change Conference that met in Copenhagen for two weeks in December. The European Union, which had committed to greenhouse gas (GHG) emission cuts as part of the Kyoto Protocol process. The BASIC bloc (Brazil, South Africa, India and China) whose members were not obligated under Kyoto to make any emission cuts. And the United States, which had rejected the Kyoto process because of the asymmetrical obligations placed on the developed versus the developing countries.

During the two years of negotiations that preceded the Copenhagen meeting, the U.S. worked with the EU to bring the BASIC countries, and the broader G77 collection of developing states they led, into a single track system that would require everyone to make emission cuts of some kind, even if not on an equal basis. The BASIC governments refused to budge. In the end, President Barack Obama cut a deal with the BASIC bloc that left the EU at a disadvantage.

The question now is whether the Congress will pass “cap and trade” legislation which will place heavy burdens on American energy and industrial sectors. If it does, the U.S. would be in the same dangerous predicament as the EU economies in the post-Copenhagen world of international competition.

At the July G-8 summit in L’Aquila, Italy, the developed countries made a vain attempt to appease the developing nations with a pledge to cut their GHG emissions by 80 percent by 2050 to reach the 50 percent global reduction goal set at the 2008 G-8 meeting. This meant the underdeveloped countries could join the effort while making much smaller cuts. The developing nations rejected the idea out of hand. They would accept no outside mandates that would slow their economic growth. On July 8th, Chinese State Councilor Dai Bingguo spoke to the BASIC delegations plus Mexico. He demanded that the international community “respect the right of developing countries to independent economic development, take into full account the specific national conditions of developing countries, and ensure that developing countries enjoy necessary room for development policies.” Chinese president Hu Jintao told the UN Climate summit in New York Sept. 22 that “climate change is an environment issue, but also, and more importantly, a development issue.”

The BASIC-G77 coalition (the G77 is chaired by Sudan, an ally of China) went beyond protecting themselves. They took the offensive, demanding that the developed countries cut their GHG emissions by 40 percent by 2020 from 1990 levels. Such a severe and rapid cut would cripple Western industry, as the coalition well knew.

Beijing and its cohorts have not changed their position by even a single word since, as shown by Premier Wen Jaibao’s speech on the last day of the Copenhagen meeting. The Chinese leader stated forcefully, “The principle of ‘common but differentiated responsibilities’ represents the core and bedrock of international cooperation on climate change and it must never be compromised…. Developed countries must take the lead in making deep quantified emission cuts and provide financial and technological support to developing countries.” In the face of such a strong stance, President Obama broke with the EU and negotiated directly with BASIC on their terms. The result was an Accord that does not require any country, developed or developing, to make any GHG emission cuts beyond the Kyoto targets which expire in 2012, and which President Obama noted had not been met anyway.

The vaguely worded Accord, the implementation of which is subject to further negotiations, only calls for the voluntary public listing by each nation of its GHG gas limiting projects. Developing countries agreed only to domestic monitoring of their emissions reductions, except for specific reduction efforts that are internationally supported. BASIC and G77 delegates had demanded financing for their GHG projects from the developed countries, and the EU was leading the effort to come up with the money. The U.S. demanded that any funded projects had to be “transparent” and BASIC reluctantly agreed when the possibility of a $100 billion a year fund was waved in front of them. The G77 and the full UN conference, however, only “noted” the Accord and did not formally adopt it. So it remains a wide open world in which each country will do what it deems is in its national interest to promote domestic growth and international competitiveness.

This leaves the EU, where the Green movement is very influential, at a disadvantage. Gareth Stace, head of climate change and environment policy at the UK’s Engineering Employers Federation, has lamented, “We desperately need clarity in the direction of policy with efforts made to ensure that competitors face similar carbon constraints and costs, regardless of where in the world they are situated. The final deal means we are as far from that as is possible…. There simply is not enough evidence of comparable effort elsewhere in the world to impose even stricter targets upon [domestic] industry.” The European Commission will review the EU Emissions Trading Scheme (it’s version of cap and trade) in light of Copenhagen.

While the U.S. House of Representatives has passed a “cap and trade” bill (H.R. 2454), the Senate has not. Sen. John Kerry (D-MA), sponsor of S. 1733, told U.S. News & World Report Dec. 16: “We are saying the United States is going to step up with real reduction, and we also need to contribute to some of the finance mechanisms in the short term for adaptation and technology transfer.” Congress is looking at reducing GHG by 17 percent by 2020 from a 2005 base year, a target far below what was discussed at the G-8 or UN.

Still, the cost of energy could double under the proposed legislation, putting American industry at a further disadvantage when competing against countries that have no comparable Green restrictions. Sen. Kerry seems to understand this, as he said in Copenhagen that workers in the U.S. should not "lose their jobs to India and China because those countries are not participating in a way that is measurable, reportable and verifiable" and that trade rivals will not be allowed to "dump high carbon intensity products into our markets." Congress will likely include provisions for tariffs on imports from countries that do not adopt GHG limitations.

BASIC sees the threat. On November 29, BASIC and G77 officials met in Beijing to formulate their four “non-negotiable” demands for Copenhagen. That they rejected mandated GHG emissions cuts, mitigation actions not paid for by the developed countries, and international monitoring were not new; but they added a fourth plank, a ban on the use of Green tariffs. At Copenhagen, the G77 tried to introduce such a ban, but it was not included in the Accord. Sources told Inside U.S. Trade that Washington was firm in blocking any language on “border measures.” French President Nicolas Sarkozy has repeatedly called for the EU to adopt punitive tariffs on exports from large GHG emitters, which means China in particular.

Despite all the effort put into the last two years of climate talks by the UN establishment and the international Green movement, the process has never been about the weather. National governments have conducted the negotiations and have sought to use them to gain economic advantages. The developing bloc has been the most aggressive and obvious about their agenda to shift wealth, technology and industrial capacity to their lands. The developed countries have had to respond and consider the competitive consequences of whatever action they take on the environment.

Pending “cap and trade” legislation would have a greater negative effect on a fragile American economy than a positive effect on the climate (if any at all). Should such legislation be adopted anyway, it must have safeguards against exploitation by foreign rivals through the inclusion of tariffs against those who use pollution as a cost-saving tactic in the marketplace. If such tariffs also have the effect of moving the U.S. trade account towards balance, so much the better.