Belong To The Climate Club Or Get Penalized: The EU’s New Trade Protectionism

Reposted from Forbes

By Tilak Doshi

Trade protectionism has venerable roots in the history of economic thought, from Germany’s celebrated Friedrich List in the 1840s to Raul Prebisch who headed the UN’s Economic Commission for Latin America in 1950 and advocated import-substituting industrialization behind a wall of tariff and non-tariff barriers. Prebisch’s theories became a canon of a failed economic development strategy in post-colonial Asia, Africa and Latin America as their “infant industries” seldom grew up to compete in world markets. They instead became conduits for crony capitalism, corruption and loss-making public investments in the developing countries.

Governments favouring important domestic political constituencies at the expense of international trade is common enough in the OECD countries as well. The EU’s Common Agricultural Policy, for instance, has often been called out as one of the more onerous burdens imposed on millions of developing country farmers. Showering subsidies and tariff protections on affluent European farmers, swelling food output and depressing world food prices is a well-documented part of the historical record. But what the EU is now contemplating in its protectionist arsenal is an altogether different animal. What sets off this new protectionism from its predecessors is the sheer scope of its application.  

Trade Protectionism Old And New

On March 10th, the European Parliament overwhelmingly endorsed the creation of a “carbon border adjustment mechanism” (CBAM) that would shield EU companies against cheaper imports from countries with “weaker” climate policies. The ‘CBAM’ will raise revenues to fund the “Green Transition” or, to use a term which has been elevated to a mantra by European policy-makers, “net zero by 2050”. The carbon border tax is one of the highlights of the European Commission’s $750 billion Green Deal.

Its adoption as EU’s policy posture could precede the G-7 meeting in Cornwall, U.K., slated for June 11 – 13. Kwasi Kwarteng, UK’s business secretary in the Boris Johnson government and host for the meeting, opined that “there will be a discussion about carbon border adjusting, carbon leakage. That has to be part of the multilateral discussion”. By “carbon leakage”, Mr. Kwarteng means that as richer countries have tightened their green regulations, many energy-intensive industries have migrated to countries that do not have such regulations. Carbon leakage will doubtless also be a central issue at the UN’s 26th Conference of Parties (COP26) hosted by the UK when it meets in Glasgow in November. Alok Sharma, member of the Boris Johnson government and President-Designate of COP26, has called for the world to “get on track for net zero by 2050”.

By penalizing CO2 emissions, the only path up the energy ladder which allowed people in the now-developed countries to graduate to their current wealth and comfort is denied to the developing countries. The EU’s plans punishes those countries that do not adopt the EU proclamation of the “climate emergency” and willingly forfeit the benefits of fossil fuel-based industrialization and economic growth for their citizens. Even more egregiously, the EU will utilize the revenues derived from carbon border tariffs to assist itself in financing its Green recovery plans.  

The Climate Club

The European Commission’s  Executive Vice President Frans Timmermans said earlier in the year that “It’s a matter of survival of our industry. So if others will not move in the same direction, we will have to protect the European Union against distortion of competition and against the risk of carbon leakage.” So, according to Mr. Timmermans, many countries outside of the EU are “distorting competition” since they have not implemented similarly punitive climate rules and regulations on their own industries.

The Nobel Laureate William Nordhaus’ solution to carbon leakage would be to set up a club of countries that have similar climate change policies that would freely trade with each other while imposing some form of carbon tariffs on all others not in the club. Now that the Biden administration has elevated climate change to its highest priority across the whole of government, it would seem that the EU and the US working together with like-minded governments in Canada and the UK would be in a position to set up a “trans-Atlantic climate club”  and thereby impose a global cost on carbon emissions.

For Those Outside The Climate Club

It is no surprise that many countries outside of the climate club find the EU’s proposed  ‘CBAM’ to be deeply concerning. Australian Trade Minister Dan Tehan labelled carbon tariffs “a new form of protectionism”. India, the world’s fourth largest carbon emitter, is not keen on joining the climate club. Referring to calls for a pledge to achieve “net zero” by 2060, Raj Kumar Singh, India’s minister for power, told a meeting organised by the International Energy Agency (IEA) last week that “2060 sounds good, but it is just that, it sounds good…I would call it, and I’m sorry to say this, but it is just a pie in the sky.” Even more baldly, he said that poor nations need to continue using fossil fuels and the rich countries “can’t stop it”. For most developing countries, “worries of an increasing carbon footprint generated by economic growth are second to worries that growth many not happen at all”.

It is not clear how the EU’s ‘CBAM’ proposal could be consistent with WTO rules and particularly the “Most Favoured Nation” obligations on WTO members which specifically outlaw discrimination among countries. Even John Kerry, the Biden’s administration’s international climate envoy leading the clarion call on the “global climate emergency”, raised concerns about the EU’s carbon tariff proposals as potentially causing disastrous fallout on international trade and relations. It would seem that the climate clubbers will have their work cut out for them at the UN climate conference in November.

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griff
April 6, 2021 2:13 am

‘By penalizing CO2 emissions, the only path up the energy ladder which allowed people in the now-developed countries to graduate to their current wealth and comfort’

but we have alternatives now and unlike fossil fuel grid based solutions they are actually reaching and improving the lives of the developing world and the world’s poorest.

Reply to  griff
April 6, 2021 9:33 am

Yes, griff, as usual far away from reality, show us, where the so called green energy helps the poorest with these skyrocking prices .
And if these “alternatives” improve the world poorest, why is Africa about to double coal fired power by 2030 ?

Last edited 7 days ago by Krishna Gans
Tom in Toronto
Reply to  griff
April 6, 2021 12:31 pm

“[alternatives to fossil fuels] are actually reaching and improving the lives of the developing world and the world’s poorest.”
Citation please?

Last edited 7 days ago by Tom in Toronto
Greg Cavanagh
Reply to  griff
April 6, 2021 7:35 pm

While it may be true that alternate energy inventions are helping the poorest, and these are truly poor communities. Solar street lights, micro electricity generators, and cooking improvements.

But all these technologies are donated from richer countries, and they must be maintained by richer countries.

The technology itself is not a replacement for coal and oil for anybody but isolated communities.

Craig from Oz
Reply to  griff
April 7, 2021 12:23 am

Your little hovel downwind of your local Lord’s solar clad manor is NOT the developing world.

Why don’t you seek permission from your Lord to leave your holding and actually go and explore reality. Renewables in the developing world is more often than not debt trap by the New Imperials.

Chaswarnertoo
April 6, 2021 2:52 am

The EUSSR is dying, it won’t be pretty.

Spetzer86
Reply to  Chaswarnertoo
April 6, 2021 3:09 am

or soon enough

Reply to  Spetzer86
April 6, 2021 3:40 am

I’ve tried to upvote you, but it doesn’t stick

M Courtney
April 6, 2021 3:01 am

Now this is the great flaw in Brexit.
It doesn’t matter that the UK doesn’t have EU numpties making our regulations. We have our own numpties making our regulations.
Boris and the Tories are quite capable of making worse decisions than the EU ever were.

Reply to  M Courtney
April 6, 2021 3:40 am

Indeed, but we can at least vote in a different set of numpties if they get it badly wrong

Ben Vorlich
Reply to  M Courtney
April 6, 2021 6:05 am

I always said that Brexit would merely cut out the middleman in most policies, the UN and other unelected groups will decide most UK policies, particularly energy and environental. As a member of the EU Britain ignored how the golden rule, don’t follow the rules. All British politicians have drunk deep of the climate change nonsense, with a few honourable exceptions now sidelined. Being in or out of the EU and which party is in power will make little difference to Net Zero in the UK

beng135
Reply to  M Courtney
April 6, 2021 6:52 am

Correct. Just look across the Atlantic — no “EU numpties” necessary for making idiotic & self-destructive policies. Done by our own “elected” home-grown oligarchs.

alastair gray
Reply to  M Courtney
April 6, 2021 10:02 am

the only reason I voted for Brexit, and that buffoon Boris is that I thought he saw through the scam and that Brexit would release us from following European nimpties over the cliff.- wrong on both counts

Timo V
April 6, 2021 3:04 am

I have started to think that EU may be a greatest disaster Europe has faced. Our leaders have still time to make it worse than two wars which reduced us to ruins.

Climate believer
Reply to  Timo V
April 6, 2021 4:18 am

I’m no fan of the EU but you’re off the scale comparing it to those wars, let’s keep things in perspective.

Europeans may be interested to know that the Parliament have recently voted for vaccine passports, which they call a Digital Green Certificate.

If you can bear the techno babble it’s all here:

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A52021PC0130&from=EN

Andrew Wilkins
Reply to  Climate believer
April 6, 2021 5:00 am

Why “green”?
Yet again, CAGW branding is slyly shoe-horned into another Great Reset concept such as medical passports.

Tombstone Gabby
Reply to  Andrew Wilkins
April 6, 2021 11:34 am

“Medical Passports”?

International travel in the 1960’s. A ‘regular’ passport, and a medical booklet that detailed your current inoculations. No inoculation, you didn’t travel. Had a workmate travelling Djakarta to Singapore – his cholera shot had expired. As such, he would not have been allowed into Singapore, so he couldn’t get on the plane. He was able to get that shot at the airport.

If you think that’s bad, try this. In 1995 I couldn’t even buy a ticket to Australia without a ‘stamp’ in my (Australian) passport from the US Internal Revenue Service (IRS) giving me ‘permission’ to exit the US.

DonM
Reply to  Climate believer
April 6, 2021 9:40 am

If I travel in with a faked Certificate (or sneak in) will they kick me out and give me a free ride home?

Craig from Oz
Reply to  DonM
April 7, 2021 12:27 am

More interestingly, if you try and travel without ANY certificates will they offer to settle you in one of their member countries and give you bottomless welfare?

LdB
Reply to  Timo V
April 6, 2021 4:30 am

For those of us not in the EU it is like a black comedy race to see who can shoot there foot off first.

Harves
April 6, 2021 4:19 am

But surely those EU industries using renewables will have such a competitive advantage over all those other countries who are still using expensive fossil fuels. Why would you need tariffs? Unless of course their lying about the costs of renewables. Surely not?

Jim Gorman
Reply to  Harves
April 6, 2021 4:36 am

Every time someone talks about renewables being cheaper and cheaper this needs to be brought up as an example of the opposite.

Andrew Wilkins
April 6, 2021 5:06 am

Totally OT, but:

I’m stood on my doorstep, smoking a cheeky cigarette, here in the UK (Wales, to be exact)

It’s snowing.
In April.

I’m sure Griff and Izaak will want to tell me more cold and snow is the resulting of warming.

“Children just won’t know what snow is” – ©2000, Dr David Viner

JeffC
Reply to  Andrew Wilkins
April 6, 2021 6:56 am

It’s not unusual to have snow in April in the UK. In 1981 I remember having breakfast on Easter Saturday out in the garden in glorious sunshine. Three days later I couldn’t get to work because of the amount of snow. 1979 also had lots of snow showers right through until nearly May.

Andrew Wilkins
Reply to  JeffC
April 6, 2021 8:35 am

This is true – but in 1979 (and even 1981!) the alarmist zealots were still desperately hanging on to the global cooling gig, and pointing to snow at Easter as evidence of this “catastrophic” cooling. They can’t have it both ways!

Andrew Wilkins
April 6, 2021 5:10 am

“carbon leakage”
Do these daft twats ever listen to the ridiculous phrases they use to describe even dafter concepts?

Tom in Toronto
Reply to  Andrew Wilkins
April 6, 2021 5:21 am

Sounds like the inevitable result of a visit to Taco Bell.

Andrew Wilkins
Reply to  Tom in Toronto
April 6, 2021 5:40 am

Made me laugh!

Kevin kilty
Reply to  Andrew Wilkins
April 6, 2021 7:10 am

Carbon leakage is how their brains disappear.

Andrew Wilkins
Reply to  Kevin kilty
April 6, 2021 8:37 am

Well, that’s a resource that wouldn’t take long to exhaust #peakwarmistbrain

April 6, 2021 5:15 am

The EUSSR is not dying, just stagnating, like a flat battery it will still show some sort of charge, but the recharge is always a bit less than the output. And the citizens have no way to effectively change the circumstances from within.

Is the EU bureaucracy caring for their constituents or maneuvering for themselves? Once the new protectionist rules are in place how do you actually measure their success or failure. If failure it is then a very tangled red taped tapestry will be woven, and the result presented as a success. Only smaller self governing entities can make a mistake, recognize the error, and take corrective action. If one dedicated and determined individual cannot make a difference, then you are in trouble.

DonM
Reply to  John MCCUTCHEON
April 6, 2021 9:50 am

If failure, they will be spending the revenue not on perfecting the greenness;

more revenue will be spent on enforcement, public relations, collection, and even the restriction of smuggling, than will be spent on the “Green Transition” .

Tom in Toronto
April 6, 2021 5:16 am

Future historians will be extremely puzzled by the fall of modern western civilization.
“They impoverished themselves on purpose? Because an angry child with a disability was scared of the end of the world? There has to be another explanation… let’s keep digging through the internet archives…”

Kenji
April 6, 2021 5:24 am

Mutual suicide pacts always have the same result … The EU may believe they’re opening Heavens Gate … but they’re really creating their own Euro-Jonestown

Tom Abbott
April 6, 2021 5:50 am

All this is based on the unsubstantiated claim that CO2 is the control knob of the Earth’s temperatures.

The advocates of this unsubstantiated claim should be asked to provide the evidence they used to substantiate the claim, in their mind.

They can’t provide any tangible evidence, so their belief is based soley on faith. Perhaps questioning them will cause them to realize their beliefs are not really based on anything other than faith.

All politicians should be asked to explain how they reached the conclusion that CO2 needs to be regulated.

Last edited 7 days ago by Tom Abbott
DonM
Reply to  Tom Abbott
April 6, 2021 9:55 am

If they are honest the answer is:

“the science points to it, BUT even if it is wrong it is still the right thing to do … we need to slow down and stop polluting.”

People are the only animals that can continue to blindly stampede over the cliff, while sitting at their desk with a cup of coffee.

posa
Reply to  DonM
April 6, 2021 3:47 pm

A few intense dosages of “freeze in the dark” therapy might encourage a significant paradigm shift … especially among the young

beng135
April 6, 2021 6:46 am

On March 10th, the European Parliament overwhelmingly endorsed the creation of a “carbon border adjustment mechanism protectionism” (CBAM) (CRAP)

Fixed.

Kevin kilty
April 6, 2021 7:02 am

a canon of failed economic development strategy in post-colonial Asia, Africa and Latin America as their “infant industries” seldom grew up to compete in world markets. They instead became conduits for crony capitalism, corruption and loss-making public investments in the developing countries.

Unfortunately what the author describes here is pretty much SOP for government. Despite promising to be a mechaism to solve social and economic problems, government is first and foremost a jobs program. John Kerry has been paid on the jobs program waaay too long.

George Daddis
April 6, 2021 7:08 am

How can a rational person say the following with a straight face:

“..many countries outside of the EU are “distorting competition” since they have not implemented similarly punitive climate rules and regulations”.

I can’t possibly win this race because my competitor won’t tie his shoestrings together like I do!

Anon
April 6, 2021 8:17 am

This Carbon Border Tax issue is the announcement that we all have been waiting for: GREEN ENERGY IS MORE EXPENSIVE. And the issue is HUGE in a second way as well, because it signifies the irreconcilable collision of two progressive projects: Decarbonization verses Globalization:

German industry sounds alarm over EU carbon border tax

“I think there is a high risk that we end up with a renationalization of trade if we now try to solve the carbon leakage problem like this,” Kempf said.

https://www.reuters.com/article/us-germany-industry-carbon-idUSKBN1WA1BB

So, in summary (sorry for the repeat if you have seen this before):

1] It is a tacit admission that European economies are no longer globally competitive. (That they have committed economic suicide and now need protectionist tariffs.)

2] It is a tacit admission that Green Energy is more expensive, not cheaper as we were promised all along.

3] Because it abandons the long standing Western ethos of “a world united by open borders and free trade“, it has a real air of desperation about it. You don’t propose something like this unless the situation is dire.

4] It confines European companies to their own domestic markets (or other Carbon Border Tax countries) as European products will be too expensive for the developing world to afford. Think about an individual making a few hundred or a few thousand dollars a year, will they buy products from Europe or the equivalent products from China, India and Russia? So, the only way around that is to “subsidize” exports:

Domestic firms whose products may be more expensive because of tougher regulations or other costs get credit in the form of a tax rebate when those goods are exported.

In other words, the West will pay companies to sell overseas? (huh??? how sustainable and realistic is this?)

5] It will force Europeans, who are paying some of the highest energy prices in the world to have to pay a premium for all of the imported products they consume (which is just about everything) in addition to subsidizing what they export. This will give the Yellow Vest movement in France even more than soaring fuel prices to protest over.

6] It will require African nations to invest in unaffordable redundant energy grids: one renewable, the other a fossil fuel back up system. Warren Buffet just submitted a proposal to Texas for an 8 billion dollar “fix” to make the Texas energy grid reliable. Where will this money come from?

7] Should an African nation decide to go down this path, how will African citizens afford the energy, as Europeans barely can afford it now? Then, how will they afford the products made by renewable energy, as the knock-on effect takes hold? It was a small raise in the fare of Chile’s solar powered metro that practically brought down the government of Chile last year and resulted in them re-writing their constitution.

8] Should African nations decide to go down this path, where will they get the funds to build out the additional infrastructure? This will essentially make them debt vassals to Western entities like the IMF. Argentina is currently going hat-in-hand to China looking to finance internal energy projects, as they have exhausted their good will with the IMF.

If I were to predict the outcome of all of this, I can easily imagine the developing world turning its back on the West in favor of China, India & Russia (thus disrupting the US globalist agenda for a one world government and economy… and empowering nations the US considers enemies). And if it continues in the long term, there will be two global economic systems, one based on expensive renewable energy and the other on cheaper fossil fuels. This is a much more likely outcome to occur than worldwide decarbonization, as all of the natural economic forces are against renewable energy.

Last edited 7 days ago by Anon
Nick Graves
Reply to  Anon
April 6, 2021 12:51 pm

Entirely plausible.

How did we end up on the Marxian side of the Iron Curtain..?

posa
Reply to  Nick Graves
April 6, 2021 3:42 pm

ANSWER: Ask the capitalists who run the DC Swamp and Wall Street.

DMacKenzie
April 6, 2021 8:32 am

The effect of CBAM is, for sure, to drive the cost of goods in the economy upwards. So far, the claim of carbon credits/taxes/offsets is that they will be revenue neutral to the government, therefore have small economic impact. Of course, one should not forget that since governments spend everything their tax departments collect, they feel they are already revenue neutral.

Bruce Cobb
April 6, 2021 10:38 am

We shouldn’t be a member of a club who would have us a member.

posa
April 6, 2021 3:45 pm

And if it continues in the long term, there will be two global economic systems, one based on expensive renewable energy and the other on cheaper fossil fuels.

Not for long. The West will drown in its own backwardness, depopulation and poverty… but likely there will be a EU wide Yellow Jacket revolt , thus wracking the EU into something like the 16-17 century religious Wars. So pathetic.

Anon
Reply to  posa
April 6, 2021 4:33 pm

drown in its own backwardness

And from that position of weakness the West hopes to lead the world to some type of new world order/ great reset? Some how they believe this, but in the world of “great power politics”, which they believe we have moved past, it means they will turn global leadership over to China, Russia and India. It is just a matter of time.

Matthew Sykes
April 7, 2021 12:22 am

Sod the EU then. Isolate them, if it is what they want. Throw up a border, stop buying their goods. If that is what they want, then give it to them.

Al Miller
April 7, 2021 7:22 am

‘By penalizing CO2 emissions, the only path up the energy ladder which allowed people in the now-developed countries to graduate to their current wealth and comfort’

You don’t have to read between the lines to see that the CO2 elitist positions are full and no poor nation peoples need apply thank you. We’ll be keeping all the power for ourselves and not sharing except to virtue signal.

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