Let Battle Commence: Green ‘Buy America’ Will Kick-Start Carbon Trade Wars

Posted on 12. Mar, 2010 by Ross in Government Policy, North America

After the collapse of the Copenhagen conference, there was one prediction which Energy-Saving News felt was easy to make: that a new era of green carbon tariffs in developed countries on dirty imports from developing nations was at hand. After recent comments from UK politicians suggesting a direction towards such steps, the battle in the US Senate over carbon reduction has begun once again to take a protectionist direction.

The new tripartisan coalition of John Kerry, Lindsey Graham and Joe Lieberman to create a new clean energy bill has begun to gain momentum again, especially with the staunchly conservative Republican Graham framing the need for urgent action as a necessity to compete against China economically in the 21st century. China currently leads the world in a range of low-carbon technologies from wind and solar power to advanced vehicle innovations, threatening the USA’s long-term economic dominance. The hope is that setting a price for carbon in the American markets would stimulate innovation and development enough to compete effectively with China.

That stimulation is only part of the competitive economics at work, though, and this week four Democratic senators brought another concept back to the table which had been dropped in the Congress version of the bill: ‘Buy American’. Worried that the main beneficiaries of the US green stimulus package were foreign companies rather than American businesses, they demanded that government investment in renewable energy and energy efficiency be made on the condition that projects predominantly use American labour and materials.

This came in the aftermath of reports that a wind farm in Texas would create 300 jobs in America, but also create 3000 jobs in China. Politics rather than economics then prompted the need to grasp for ‘patriotic’ protectionist measures from the toolbox of populist policies.

As the world slid into the global economic downturn, world finance leaders agreed to avoid protectionist policies and keep trade boundaries open to help speed the recovery. However, the collapse of Copenhagen saw the demise of global cooperation on climate change, and imbalances in the attempts of different economies to deal with decarbonising has always led to calls for carbon tariffs. The economic recession may now not be enough to hold back those calls: in order to get the bill passed in the Senate, concessions to Republican interest will need to be made and a ‘Buy American’ measure will provide the sort of popular support that the bill is in desperate need of.

If the US brings in such a carbon tariff, other nations would be expected to reciprocate with their own duties, leading to a carbon trade war. The US would find itself on the receiving end of such actions too, especially Europe which the US is a next exporter of carbon to. Europe would have the most to gain from a carbon trade war - 30% of the EU’s carbon emissions per capita are essentially outsourced to other nations - whilst China would appear to have the most to lose as the biggest carbon exporter, according to research from the Carnegie Institution. However, with China steadily investing in renewable energy and stimulating its own internal consumer market, the effects of a carbon trade war would probably be felt worst in developing countries which would see consumer prices rise without competition from domestic products, since such a massive proportion of manufacturing is now done in developing countries.

Image of the port of Oakland, USA by Ingrid Taylar @ Flickr