08 October 2009 17:55 [Source: ICIS news]
By Joe Kamalick
In a 6 August letter sent to President Barack Obama, ten Democrat senators warned that they could not support a climate change bill with a cap-and-trade mandate unless the legislation also contains a strong “border adjustment” provision.
A border adjustment is just another term for a tariff on US imports from other nations, specifically a carbon tax on products imported from those countries that do not impose emissions reductions on their own domestic industries.
Everyone concedes that a cap-and-trade mandate would significantly increase energy costs across the board for
Although no one really knows how a carbon tax might be calculated, in theory washing machines imported from
The Cato analysis contends that “First, the key targets of the proposed import barriers,
“Most carbon-intensive imports to the
Second, the study contends that such border adjustment carbon taxes could well be illegal under World Trade Organization (WTO) rules and almost certainly would be challenged.
Even if the
Charlie Drevna, president of the National Petrochemical & Refiners Association (NPRA), also contends that a cap-and-trade system would undermine US domestic conventional fuels industries and the nation’s general export trade as well.
“Okay, so Congress puts in a cap-and-trade system and energy costs shoot up, making US manufacturers less competitive,” Drevna said. “So Congress says the solution is a carbon tax on imports.”
“I have two words for you,” he said, “Smoot-Hawley.”
Drevna was referring to the US Tariff Act of 1930, more commonly known as the Smoot-Hawley Act for its two Republican sponsors, Senator Reed Smoot of
The Smoot-Hawley Act raised US tariffs on more than 20,000 imported goods and commodities, raising the import tax on more than 3,000 items to an effective rate of 60%.
In the wake of that protectionist policy, US imports decreased 66%, but exports also plummeted by 61% as other nations levied their own retaliatory tariffs against American goods.
Many historians contend that Smoot-Hawley and its impact on
The climate change bills pending in Congress and their proponents argue that the carbon-cap costs imposed on
But Steven Hayward, an environmental scholar at the American Enterprise Institute (AEI), testified in Congress this week that even with a carbon tax on hydrocarbon fuels, they will remain more economical worldwide than still-costly alternative and renewable technologies.
“Given that roughly 80% of the world’s proven reserves of hydrocarbons are located in less developed nations, and given that even with a global carbon price of $28 [€19] per tonne [a price suggested in pending climate bills in Congress], hydrocarbon energy will still be cheaper at scale than most renewable energy technologies,” Hayward said.
“If the US and
In addition, while proponents of climate change legislation contend that a carbon cap will spur
“If there is a substantial increase in the deployment of wind and solar power in the
“In other words, to reach some of the ambitious targets set out in recent legislation, we’re going to need every windmill we make right here at home, and more likely we will continue to import wind and solar energy components from abroad,” he said.
We also will be importing even more energy from abroad, according to Drevna.
With a carbon-cap tax value at around $25, Drevna said that many of the 130 or so US hydrocarbon fuels refiners “would have to make very critical decisions” about staying in business.
“A refinery that produces 100,000 barrels a day of gasoline could be facing an annual carbon emissions permit fee or tax of around $140m, which is about ten times the profit that a refinery of that size could make, even in a good year,” he said.
“And the carbon cost to larger refineries would be proportionately bigger,” he added. “A refiner producing 300,000 barrels a day would be facing three times the carbon costs of the 100,000 barrel producer. No refiners make that kind of money.”
A carbon-cap tax on domestic refiners would force shutdowns and increasing
“Historically, the thing about Congress is that whenever they enact sweeping legislation like this, there inevitably are major unintended consequences because they don’t delve into the issue far enough,” Drevna said.
“Or they just don’t care to listen,” he added.
($1 = €0.68)
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