Exports at risk from U.S. climate change bill

Submitted by Brett H on Wed, 04/08/2009 - 09:25.
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Wednesday Apr 08, 2009
By
The Globe and Mail
Proposed U.S. legislation could slap import levies on a range of Canadian products - from steel and cement to paper and ceramics - if Washington deems Canada is lax in fighting global warming.
The climate change legislation also includes low-carbon standards that could drive up the cost of imports from the Alberta oil sands.
Leading Democrats in the U.S. Congress this week introduced a bill to cap greenhouse gas emissions that would require the administration to impose tariff-like fees on importers whose own governments don't have regulations, reporting rules or enforcement mechanisms that are as tough as those laid out in the legislation.
The proposals in the bill have wide Democratic support and stand a good chance of becoming law.
U.S. President Barack Obama and congressional leaders are promising to move quickly on measures to combat climate change - from emission caps on industry, to low-carbon standards for transportation fuel, to renewable energy portfolios for utilities.
And while Mr. Obama yesterday warned of the dangers of protectionism at the Group of 20 meeting in London, trade experts say the environmental policies that he backs include a minefield of potential protectionist measures that would favour domestic producers over importers.
Coming after U.S. Energy Secretary Steven Chu's recent musings about using tariffs to protect American industry, the bill introduced this week by Representative Henry Waxman has heightened fears that the U.S. climate legislation will accelerate growing ecoprotectionism around the globe.
"We're very concerned," said Jayson Myers, president of the Canadian Manufacturers & Exporters association.
"I think the worst thing we could see here is regulatory standards being applied on manufacturing processes to restrict access to the U.S. market. ... On issues of enforcement, the boundaries get blurred pretty quickly, especially when you've got strong, local political pressure saying 'protect American jobs.' "
Chinese officials reacted angrily to Mr. Chu's suggestion at a congressional committee two weeks ago that some sort of tariffs could be used as a "weapon" to protect American jobs.
Under the legislation introduced this week, the U.S. government would be required to act when American manufacturing industries lose market share to foreign competitors deemed to enjoy an unfair environmental advantage.
Such importers would be required to purchase "emissions allowances" meant to equalize the environmental burden faced by U.S. producers.
The Obama administration and congressional leaders have vowed to pass climate change legislation this year, despite the recession. There is widespread agreement among supporters that such legislation must include measures to protect energy-intensive industries from unfair competition.
The current bill specifically targets industries such as steel and steel products, aluminum, cement, glass, pulp and paper, chemicals and ceramics.
Environmental experts argue such measures are necessary to prevent "leakage" - the loss of environmental benefits that would occur when energy-intensive industries boost production, and emissions, in less-strict jurisdictions and increase their exports to the United States.
Under the proposed legislation, Washington would have the power to control the volume of energy-intensive imports - and their prices - from countries that do not meet U.S. standards, said Elisabeth DeMarco, a Toronto-based lawyer with Macleod Dixon LLP.
That's because the proposed law would require importers to purchase "international reserve allowances" but would only make a limited number of those allowances available.
"Our provincial and federal governments need to wake up as to what is going on," Ms. DeMarco said. She added Canadian industries are going to have to step up their efforts to ensure their principal export market is not threatened by the U.S. climate change legislation.
Even as Congress debates a cap-and-trade bill, the U.S. government is expected to proceed with "product standards" like renewable-power standards for utilities and low-carbon fuel regulations, said Aldyen Donnelly, an economist and president of WDA Consulting Inc. in Vancouver.
She said many Democrats view the proposed environmental regulations as a way of rolling back massive job losses in the goods-producing sector that the United States has suffered over the past decade. "It was inevitable that as soon as the Democrats came to power, they were going to go this way," she said.
Prime Minister Stephen Harper's government is attempting to negotiate a continental agreement covering greenhouse gas emissions that would ensure Canadian industries are not unduly disadvantaged by the U.S. climate change regulations.
The government had been scheduled to unveil its own regulations to limit emissions on key industries but Environment Minister Jim Prentice has signalled that effort is on hold until there is greater clarity from Washington.
However, Ottawa will have to revisit its plans for intensity-based targets - which set regulations as a percentage of a company's production rather than hard caps - to ensure its plan is consistent with the U.S. approach. Canada must also ensure its enforcement mechanisms - and even its reporting rules - are consistent with U.S. approaches to avoid trade harassment.