Experts Say International Coordination on Carbon Border Adjustment Far Off

The Oct. 23 program, which covered developments in carbon border adjustments, also noted how Canada and the U.S., with deeply intertwined energy sectors and massive trade interdependencies, have done nothing to address trade and carbon leakage between them.

Panelist Barry Rabe, a professor of public policy at the University of Michigan, said that Canada charges $65 (in Canadian dollars) a ton for carbon emissions nationwide, and plans to hike that price to $170 a ton in 2030. Despite the fact that 75% of its energy intensive exports are to the U.S., he said, there's no work on the horizon. In fact, Rabe said, there's political pressure to slow the carbon tax increases as federal elections approach.

"The politics [of a price on carbon] is much, much tougher than anyone estimates going in," Rabe said. He said it's not just getting it passed initially, but making the policy stick over time, and the international negotiations. "If there should be an easy slam-dunk case for coming into alignment," he said, it would be U.S.-Canada -- they also have similar carbon intensity in their industries.

Panelist Max Gruenig, a senior policy adviser at climate change think tank E3G, said he is skeptical that any moves toward a climate club, even just to establish equivalency of efforts to fight emissions in industry, can happen in the next decade.

Panelist Shuting Pomerleau, deputy director of climate policy at the nonpartisan think tank that hosted the program, said she's also skeptical that multilateral negotiations on climate will go anywhere in the medium term. She noted that international tax cooperation, which was aimed at getting agreement at the Organization for Economic Cooperation and Development for all countries to have a corporate income tax of at least 15%, has fallen apart after initial agreements in principle. (These negotiations were also planning to change how Facebook and other Internet giants are taxed, and in doing so, head off digital services taxes.)

"Pillar 1 and Pillar 2 is a hot mess at the OECD," she said.

However, Gruenig said he hopes there will be more coordination between countries after 2033, as the European Carbon Border Adjustment Mechanism will have been collecting its revenue for about five years by then (see 2310020037). He said the U.S. won't be much affected, but other countries will.

Pomerleau emphasized that most of the policy momentum in the U.S. Congress is not really a carbon border adjustment mechanism -- treating domestic producers, who pay a price on carbon, the same as imported goods -- but just carbon tariffs. She opposes that approach, saying it's more designed to punish China than progress against greenhouse gas emissions, and she predicts it will lead to "a lot of trade wars." Moreover, Pomerleau said technology sharing among countries will be critical to fighting climate change.

Gruenig said that similarly, the Global Arrangement on Steel is masquerading as a climate change policy, but really, the U.S. wants a carveout from the CBAM, and the EU wants to end Section 232 tariff rate quotas on its steel exports. Gruenig said steel and aluminum do need to be produced without so much fossil fuel use, but even if an arrangement to privilege "green" steel were to be reached, it would not change the status quo much.

Pomerleau said the negotiations do provide one great opportunity, and that's for the U.S. and the EU to collaborate on standards for measuring and reporting carbon emissions in industry.

Even with all the pessimism, the panelists agreed governments will have to keep thinking about how to manage trade when they are also seeking to decarbonize manufacturing or reduce emissions for natural gas production. "This is not going to go away," Rabe said. He said it will have to be done in a way that is credible and transparent, and lthat asts.