Paris Agreement: Carbon Tax Elders Offer More Bad Advice

Guest essay by Marlo Lewis Jr. of the Competitive Enterprise Institute

They’re back! The same GOP elders who have been pushing what American Enterprise Institute economist Ben Zycher charitably calls “The Deeply Flawed Case for a Carbon Tax” are now urging President Trump to stay in the Paris Agreement.

Yesterday in the New York Times, former Reagan Secretary of State George P. Shultz and his Climate Leadership Council colleague Ted Halstead, who heads the organization, argue that staying in the pact will “spur new investment, strengthen American competitiveness, create jobs, ensure American access to global markets and help reduce future business risks associated with the changing climate” whereas exiting will “yield the opposite.”

Shultz and Halstead ignore the chief perils of remaining in the Paris Agreement:

1. The Agreement is the legal framework for a permanent global campaign of political pressure and diplomatic blowback to “name and shame” leaders, like Trump, who dare to champion the American people’s freedom to develop the country’s vast energy resources.
2. Remaining in the Agreement ensures that U.S. leaders will continually have to negotiate domestic energy policy with foreign governments, multilateral bureaucrats, and anti-growth advocacy groups—elites who do not put America’s interests first.
3. If Trump is free to treat President Obama’s emission-reduction pledge—the U.S. “nationally determined contribution” (NDC)—as a retractable wish list rather than the official commitment it plainly is, the next progressive president will similarly be free to rescind Trump’s NDC and pick up where Obama left off. No revision of the U.S. NDC can secure the future of U.S. energy producers as well as exiting a pact designed to bankrupt them.
4. Failing to repudiate a treaty adopted unilaterally, with the stroke of a presidential pen, without benefit of the Senate’s advice and consent, will set a dangerous precedent undermining one of the Constitution’s important checks and balances.

Shultz and Halstead write that, “Our companies are best served by a stable and predictable international framework that commits all nations to climate-change mitigation.” No so. Our companies are best served by an international framework that allows them to capitalize on comparative advantages. One of U.S. industry’s key advantages, so vital to the manufacturing renaissance on which Trump campaigned, is an abundance of affordable energy.

As Stephen Eule of the U.S. Chamber’s Institute for 21^st Century Energy explains:

It is well understood that America’s abundance of affordable, reliable energy provides businesses a critical operating advantage in today’s intensely competitive global economy. IEA [International Energy Agency] data show a huge comparative energy advantage in natural gas, electricity, and coal prices for U.S. industry compared to its OECD competitors, with prices for these energy sources in the United States often two to four times less.

European Union environment minister Margot Wallström once said that the “Kyoto [Protocol] is about the economy, about leveling the playing field for big business around the world.” That goes in spades for the Paris Agreement. The only way to impose  high European energy prices on U.S. firms is to pressure U.S. leaders to adopt European energy policies.

Humorless scolds never consider that candidate Trump might have been twisting their tails when he tweeted that “The concept of global warming was invented by and for the Chinese in order to make U.S. manufacturing non-competitive.” Eule notes that the marginal cost of carbon dioxide emission reductions under China’s mostly business-as-usual NDC is $0 per ton whereas the marginal cost under the U.S. NDC is $85 per ton. What I find in Trump’s funny tweet is a serious point: Global warming is the rationale for the Paris Agreement, which would handicap U.S. manufacturers much more than it would China’s.

Shultz and Halsteed warn there will be “repercussions” and damage to America’s “reputation and credibility” if “America fails to honor a global agreement that it helped forge.” However, the exact same can be said if America fails to implement the NDC on the basis of which the Obama administration negotiated the Agreement, and which he subsequently submitted as the official U.S. commitment. The Paris Agreement expressly provides two options for withdrawing, but provides no option to “adjust” an NDC to make it less stringent. By what logic is the former less kosher than the latter?

Shultz and Hallstead would have us believe that Article 4.11, which states that a party “may” adjust its NDC “with a view to enhancing the level of ambition” also implies the party may adjust the NDC to do just the reverse. Huh?

That theory can’t be right, because it conflicts with the plain meaning of words like promise, pledge, and commitment. Try applying it to more mundane circumstances. Dad promises to pick up the kids after school. He fails to do so and they wait for hours in the freezing rain. Mom demands to know why he broke his promise. Dad retorts: “I did not break my promise, because I am now retracting it!”

Shultz and Halstead note that “Global statecraft relies on trust, reputation and credibility, which can be all too easily squandered.” No quarrel there. But that’s actually a reason to withdraw. President Obama had no business putting the trust, reputation, and credibility of the United States on the line without first vetting the Paris Agreement with the U.S. Senate. Submitting the Agreement to the Senate for its review would have spared everyone the present controversy, because the pact had no chance of being approved.

Article II, Section 2, clause 2 of the Constitution states:

He [the President] shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur. . . .

The advice and consent process is a quality control filter. Especially as combined with the supermajority ratification requirement, Senate review ensures that no treaty will be adopted without broad-based political support. That discourages the executive from promising others more than the political composition of the country and statutory authorities actually allow him, or his successors, to deliver. The treaty process minimizes the risk that national interest concerns will impel one executive to upend international commitments made by his predecessor.

Shultz and Hallstead should be encouraging Trump to repudiate the dangerous precedent Obama set, not validate it. After all, how much confidence can other countries put in U.S. leaders if the latter cannot be trusted to follow their own Constitution’s rules of international engagement?

Shultz and Hallstead claim “the only risk Mr. Trump faces from altering or weakening domestic climate policy under Paris is in the court of public opinion, not in federal courts.” The court of public opinion, however, is what ultimately determines the direction of public policy. As long as we stay in, the Agreement will give “progressives” at home and abroad a high-profile global platform for lobbying U.S. policymakers and influencing public opinion.

It is naïve to suppose that legitimizing such an arrangement could not severely narrow the energy policy choices available to future administrations, Congresses, and voters. It is also naïve to assume the U.S. government can remain in a pact built on the narrative that governments must take urgent action to avert planetary disaster without inviting courts to step in when policymakers fail to deliver.

Shultz and Hallstead warn that “pulling out of the agreement could subject the United States to retaliatory trade measures, enabling other countries to leapfrog American industry.” But they just told us the only penalty for tearing up Obama’s NDC is bad PR. If pulling out exposes us to retaliatory carbon tariffs, why wouldn’t replacing Obama’s emission reduction pledge with a drill-baby-drill-style enthusiasm for new oil and gas exploration?

None of Shultz and Hallstead’s arguments for staying in make much sense. Until we get to the penultimate paragraph. Then we learn what they’re really after—a carbon tax:

If the president wants to strengthen America’s competitive position, he should combine a price on carbon with border tariffs or rebates based on carbon content. United States exports to countries without comparable carbon pricing systems would receive rebates, while imports from such countries would face tariffs on the carbon content of their products.

Far from viewing the Paris Agreement as a voluntary pact with no penalties for non-compliance, Shultz and Hallstead actually expect the Agreement to be enforced through a global regime of “border tariffs or rebates based on carbon content.” They want the United States to lead the world into a new era of retaliatory trade measures. History, however, suggests protectionism is harmful to world peace and prosperity. Also, how do they know U.S. firms would always or usually prevail in trade disputes, rewarded with rebates rather than penalized with tariffs?

Zycher points out how difficult it would be for the border tariff/rebate assessors to equilibrate carbon taxes with “regulations, or subsidies for such alternative energy sources as wind and solar power, or other policies that are purported to reduce [greenhouse gas] emissions.” Even more difficult is factoring in “the international supply chain phenomenon: Goods imported from a given nation are likely to embody components and other inputs from other nations—perhaps many other nations—in vastly differing proportions, and those nations’ policies on GHG emissions almost certainly will vary considerably.”

Sorting it all out—especially in anything approaching real time—would likely require “a new bureaucracy, or perhaps an expanded one at the Internal Revenue Service,” making highly technical decisions with “important implications” for  profits, shareholder value, and market share. Hardly a plan to make America great again.

Trump should be wary of taking advice about the Paris Agreement from carbon tax advocates, because their political judgment is terrible. The battle for hearts and minds in American politics is to no small extent a contest between a party that is pro-tax and anti-energy and a party that is anti-tax and pro-energy. That clear product differentiation is a political asset of enormous value to the GOP. Indeed, that sharp contrast was an important factor enabling Trump to defeat Hillary Clinton in the 2016 elections and the GOP to retain majorities in the House and Senate.

So now a group of GOP elders argues that Trump, despite promising to cut taxes and remove political impediments to domestic energy production, should impose a new tax on energy. Similarly, they argue that Trump, despite promising to “cancel” America’s participation in the Paris Agreement, should stay in. And all so that America can finally get the carbon tax the elders think is a brilliant idea.

Had Trump campaigned for the Paris Agreement and a carbon tax in 2016, would he still have defeated Hillary Clinton? Indeed, had he campaigned as Shultz and Hallstead now urge him to govern, would he even have won the GOP nomination?

Those are questions Trump and his advisors should consider carefully if he does not want to become a mere blip on the road to a carbon-constrained future rather the president who changed the direction of U.S. energy policy and made America great again.