Possibility of carbon tariffs is causing unease

China and India on Friday lashed out at the possibility of the United States slapping so-called carbon tariffs on goods imported from countries that pollute, 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 G-8 meeting in Italy and at a 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 year’s end in Copenhagen.

China, the world’s No. 1 greenhouse gas emitter, said carbon tariffs would violate World Trade Organization rules 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.

Although the ministry did not directly mention the United States, the comments come a week after the U.S. House of Representatives passed the Clean Energy and Security Act, which includes “carbon equalization” provisions that could go into effect in 2025.

The measures are meant to give rich nations a way to protect domestic industries that fear putting a price on carbon emissions will make their goods more expensive compared with imports 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 proposed legislation 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 produce.

“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 that he was not in favor of climate-linked protectionism.

Concerned that their efforts to curb greenhouse gases would put their industries at a competitive disadvantage, the United States, Canada and the European Commission have put forward proposals to “level the playing field.”

Under the House 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 China, India 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 advisor 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 December’s meeting in Copenhagen seen as pivotal.

“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 the New Delhi-based Centre 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, director for Greater China of the Climate Group, a nongovernmental organization that helps governments and companies reduce 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 thus far have 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.”