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Obama's New Climate Goals Signal New Trade Tariffs

Politics / Protectionism Dec 03, 2012 - 12:13 PM GMT

By: Andrew_McKillop


Obama's special climate change envoy to the present Doha climate change talks, Todd Stern, told delegates to the June 2012 Rio + 20 conference that president Obama and state secretary Clinton elevated sustainable development to one of the three pillars of U.S. national security policy, along with diplomacy and defense. Incorporating climate change action, it is a key issue.

Getting sustainable development right and mitigating climate change, he went on to say was a difficult task due to "the pressure on resources, on food and water, and oceans, and many other things just become greater and greater with growing economies and growing population". Much more basic, it is also a difficult funding and financing, taxing and spending quest.

Speaking this week in Doha, Todd described "the road from Copenhagen" and the failed 2009 climate summit which tamed elite talk on global regulations for CO2 emission caps and global trading of emissions credits, as a bumpy trail, "but it was a start". Action at Cancun, then Durban on a new legal agreement of some kind that would engage all countries to limit emissions and promote sustainable development, and go into effect at latest by 2020, was in his view now on the home run. Todd felt able to advance the timeframe: he said that he was in Doha to clear the path for an international binding agreement on climate by 2015.

While Obama failed to deliver on his promise to start a cap-and-trade program in his first term, he’s working on policies to cut greenhouse gases 17% by 2020 in the US, historically the world’s biggest polluter but now neck-and-neck with China. Showing the renewed confidence inside the Obama administration, and the new approach, Todd told reporters at Doha that he thinks the US can meet this goal even if Congress does not pass domestic climate legislation the rest of this decade.

The reasons are both complex and simple. These latter include Obama's clean energy drive. Obama has moved forward with energy saving, greenhouse gas-limiting regulations for vehicles, new build power plants, household appliances, and all new-development of energy sources. Aided by a complex set of changes in the economy and energy technology, Obama has already doubled the use of renewable power and has called for 80% of US electricity to come from “clean-low carbon” energy sources, including natural gas, the renewables, and nuclear power by 2035. Overseas, Germany is on track to easily achieve its Energiewende goal of 35% of national electricity coming from renewables-only, by 2020. Under its published zero nuclear option for 2030, Japan would need to invest 43.6 trillion yen ($548 billion) on solar, wind and other types of renewable energy and at least $70 billion on power grids - but even under the option of keeping a 15%-25% nuclear power share in 2030, Japan will need to spend about $350 billion on renewables.

The most basic question is how to fund this spending?

For the US, Japan and the European Union this question comes amidst the worst crisis of sovereign or national debt ever experienced. For the US, the Obama administration and Congress are grappling to avert a budget crisis and $607 billion in automatic spending cuts, needing automatic tax hikes. Unlike 2009, however, when Obama failed to prevent the collapse of climate talks in Copenhagen, the US of today can point to concrete actions in the fight against global warming.

Simply due to the combination of ever-tougher EPA (Environmental Protection Agency) regulations for power plants, the onrush of shale gas, and near-zero growth of power demand the US already emits about 8.5% less CO2 and other GHG, in the power sector, than in 2005. Also helping Obama in what he describes as his "personal conviction" that human GHG emissions are changing the global climate, a summer of extreme heat, drought and wildfires is also supporting the US delegation in the Doha talks by raising public awareness and concern about the risks of climate change, The recent superstorm Sandy, which devastated the East Coast has further increased public support for action.

The new approach is therefore simple: new energy taxes without cap-and-trade. These taxes will be easier to levy in the US - due to low and often declining energy prices - than in the EU or Japan, with the fatal combination of high energy prices and high energy taxes. In the US, recent moves by the Obama administration include action to develop cross-party support for a new "climate related" energy tax set to raise $100 billion in its first year of operation.

As I have reported in recent articles on this subject, the huge gap between what even the largest new energy tax can bring in, and the spending needs to achieve national clean energy goals in all OECD countries including the US, underlines that other sources of financing are badly needed and will be found. These will almost certainly include international action to place "climate protecting" tariffs on high-carbon export goods and services: which means China and India, as well as other fast-growing, trade surplus, industrialising countries.

Exactly as it did at Copenhagen, Cancun and Durban, Beijing argues for keeping a division between developed and developing nations, setting out different and lower responsibilities to cut emissions for non-OECD countries. China notes that despite its roaring growth, tens of millions of Chinese still live in poverty, more than a hundred million do not have regular electricity supply, and emission limits would further slow its already decreasing economic expansion. In his first remarks at the Doha talks, Todd Stern said the planned international agreement, to be adopted in 2015, must be based on "real-world" considerations, not "an ideology that says we're going to draw a line down the middle of the world."

To be sure Stern said this was "enormously challenging", but the US does not intend backing down this time. The threat of "GHG tariffs" is rarely spelled out, of course, and for the moment the North-South or OECD-Rest of the World sparring has been focused on the in fact very slow, "fast-start financing" of climate change mitigation spending of around $30 billion pledged but not mobilized by developed economies, for a group of selected small island and poor nation states in the period 2010-2012. The OECD group has promised to ramp up financing to at least $100 billion by 2020 but to date there are no specifics on how the funding would be organized. Obviously, this funding will be easier if OECD trade deficits with "high carbon China" are reduced.

Putting this another way, Trevor Houser, a former US climate negotiator who served during the Copenhagen meeting recently told the Washington Post: “For countries like China that were able to hide behind a perception of US inaction, the fact that US emissions are falling helps increase pressure. It takes away the excuse that action is stalled because of the US". For the EU27 countries, and now Japan this argument is even easier, due to the combination of economic and financial crises pushing down emissions - while in the European case the continent's national Renewable Energy Action Plans (REAPs) pursue high mandatory goals for cutting the role of fossil fuels in the energy mix. As in the US, Europe and Japan the electric power sector is the main focus for action and spending, making the close monitoring of China's vastly coal-dependent power sector an easy target. Applying penalties on Chinese carbon emissions embodied in its manufactured export products is becoming a more and more politically-acceptable talking point.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2012 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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