Protectionism and the ETS

There was lots of discussion, particularly in the AFR, today about ‘green protectionism’; this, the growing push for trade-exposed industries to be treated differently as a result of emissions trading. Now one part of this is whether an industry is so trade-exposed that their production would be significantly curtailed as a result of the ETS. That is a very thorny question and a receipe for rent seeking.

That said, if there are such industries and they are significant emitters, then doing nothing about them or opting for poor solutions like free permit allocations will not solve the problem. And the problem as I see it (and have written about previously) is not about investment, jobs, national champions or any of the rationales that have given protectionism its highly deserved bad name. The problem is that our emissions policy will be rendered less effective if we do nothing about them. If these industries curtail production (and emissions) and that production resurfaces elsewhere in the world we are not engaging in effective climate change policy because it is a global problem. If we are going to have an ETS, it is incumbent upon us to make sure it is effective in reducing emissions worldwide.

Some believe that what this implies is that we need to get international agreements to work prior to having an ETS. I disagree in that wealthy countries need to show leadership on these issues and also, waiting will only make adjustment harder later on. The government’s push to move now is important in this regard and that is why I am willing to accept temporary protectionism (e.g., a carbon tariff) to ensure that those efforts are worthwhile. This I advocate with some degree of nervousness as such policies might stick. But I think you could set it up in a way that it is self-evaporating once other countries come into line.

6 thoughts on “Protectionism and the ETS”

  1. Maybe we could just implement a Carbon Added Tax, along the lines of the GST. Imports get taxed according to carbon emitted, exports get a rebate.
    That would level the playing field for business, while still giving the correct price signals for consumers.


  2. This does seem like the best solution (at least in the interim), my big concern though is how do you calculate the amount of carbon embedded in imports?
    The complexity of this task is the reason that the Government rejected this option (Green Paper, pg 300).
    Consider for example your average laptop computer, this could have 100’s of components from 10’s of different suppliers each themselves using components and primary materials from a number of different supplier. Is the cost of keeping track of the carbon of every component (and enforcing possible fraud) going to be the cheapest way to reduce carbon emissions?
    Perhaps I am overstating it though, and I note that one Canadian writer believe the auditing task would be difficult but not insurmountable ( I will be keeping my eye out though for more writing on the issue.


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