Lord Stern snubbed as free trade trumps climate change

Lord Stern yesterday called on Parliament to introduce a revolutionary system of 'carbon tariffs' to help save the global climate. This would take the form of an import duty on goods from countries that do not charge companies for their carbon emissions - and so remove the disadvantage faced by businesses whose prices are undercut by firms in states which do not have carbon pricing.

"Over the medium term, some sort of border adjustment for differential approaches to policy on carbon in different countries would be appropriate," Stern told MPs on the Commons' energy and climate change committee. There was a "case for an adjustment" in ten or 20 years' time, he argued, when countries still resisting a carbon price should be hit by "a tariff to take into account their inability to price carbon".

Lord Stern added he was even more concerned about the dangers of climate change now than he had been when he authored his influential Stern Review on the Economics of Climate Change, published by the UK Government's Treasury department in 2007.

He now felt that he had underestimated the impacts of the "very hostile environment" that would be produced by severe climate change, and "I would have been more worried about future generations being possibly worse off, in some areas substantially worse off, than the current one."

Lord Stern's comments constitute a call for a whole new system of global climate regulation. Under the existing Kyoto Protocol, signed in 1997, only a short list of already industrialised countries are required to cut their carbon emissions. Many of the world's biggest emitters, notably China and India, are exempt. Even industrial countries that violate their obligations like the USA and Canada face no penalty for non-compliance.

Lord Stern's proposed carbon tariffs or 'border adjustment measures' would penalise all countries that fail to price carbon or put other measures in place to constrain carbon emissions. And it would protect industries in countries that do price carbon emissions from cheaper imports from countries that do not. The measure has the backing of numerous economists including Dieter Helm and Joseph Stieglitz.

But the UK Government was quick to pour cold water on Lord Stern's proposals. A spokesman for the UK's Department of Energy and Climate Change told The Ecologist: "Fundamentally we continue to believe that border adjustment measures are an unhelpful way to address carbon leakage because they risk having protectionist undertones. They are also very complex to administer, with costs for government, business and consumers."

"This could be further complicated, where exports originate from a country using less carbon intensive technology, as such countries may seek 'tax credits', creating even more complications to global trade", he added.

The Government would therefore "continue to favour existing mechanisms and preferred promoting international cooperation as the best way of limiting carbon emissions." But the spokesman insisted that the Government remained "open to opinions for and against the use of border adjustment measures".

Past proposals fo related measures have triggered protests from developing countries who do not have firm obligations under the Kyoto Protocol. For example China complained loudly when the US passed its cap-and-trade law in 2009, suggesting the move to "slap a carbon tariff on some imported products violates the World Trade Organisation's (WTO) basic principles". A Ministry of Commerce spokesperson said at the time that the move was "trade protectionism in the disguise of environmental protection".

But this could be about to change. China has adopted numerous strategies to constrain its carbon emissions including massive deployment of wind, solar power and solar hot water heating, and regional 'cap and trade' markets for carbon emissions. In this respect it is way ahead of industrial countries like Canada that have taken little if any action and have far greater per capita emissions.

Governments seeking to win approval for a carbon tariff would have to persuade the WTO the principle was being applied uniformly, rather than to protect its own industries. This could prove difficult because the WTO has been historically reluctant to prescribe policies to governments, meaning it relies on a common-law approach built on precedent to help make its decisions. But some think that change may be on the way.

"If China adopts an emissions cap - or the US for that matter - the debate could shift", said one climate campaigner. "If powerful nations with influence at the WTO start asking for clarification on the rules so that they can impose tariffs, it could be achievable. The argument comes down to the old dispute over whether we should be placing emissions restrictions on developing countries - either directly through binding emissions caps or indirectly through import tariffs on their goods."

A report released earlier this year by former WTO appellate officer Jennifer Hillman concluded: "Provided that policymakers carefully design a [carbon] tax, keeping in mind the basic requirements of the WTO not to discriminate in favour of domestic producers or to favour imports from certain countries over others ... the threat of WTO challenges should not present a barrier to policymakers wishing to adopt a carbon tax system now."

Carbon tariffs would also tackle the problem of "embedded emissions" in a country's imports. The emissions are currently counted as 'belonging' to the producing country, not the country where the products are purchased and used. A study by Oxford University's Dieter Helm shows that while the UK's carbon emissions fell by over 15% between 1990 and 2005, when imported carbon is included the total consumption levels actually saw a 19% increase over the same period.

Doug Crawford-Brown, director of the Cambridge Centre for Climate Change Mitigation Research, commented: "If carbon dioxide is being produced in the name of consumers elsewhere it's consumers who are responsible for that carbon dioxide. I think of it not as punishing the producing country for not having a carbon price. I think of it as making the consumer pay for whatever is the environmental damage of that consumption pattern."

Labour backbencher Graham Stringer MP, who raised the carbon tariffs issue by pointing out imports from China were increasing even as the UK's emissions fell, suggested that "current policies are producing negative outcomes" and that Britain was "doing the wrong things". Stern replied: "I certainly think we're not doing enough. I would favour an intensification of the policies [we have at present]. Looking for energy efficiencies, developing a carbon price, research and development - these are not the wrong things."

Lord Stern also deplored the "internal quarrelling and feuds" which were risking investment in green energy and energy efficiency in the UK. And he criticised the Government for having missed the "opportunity" created by the recession for large scale investment in the green economy.

Alex Stevenson is parliamentary editor of politics.co.uk.

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