POLICY:

Climate law poses trade risks; lawmakers unsure how to respond

From the East Coast to the West and across the political spectrum, House lawmakers remain divided over how to protect America from losing a competitive edge to China and other nations under climate change legislation.

At issue is how to prevent cement, steel, aluminum and other energy-intensive industries from responding to proposed new laws that could have the effect of slashing emissions by shuttering factories only to reopen them in countries unfettered by costly regulations.

Some lawmakers like the idea of charging a "border" tax on imports from countries that don't play by the same rules. Others say giving import-challenged U.S. companies a financial break, in the form of either rebates or a percentage of free carbon "allowances," is best. All the ideas come with vocal opposition -- some with legal challenges -- and policymakers are far from reaching a consensus on any approach.

"We're going to try to construct a formula that ensures that our energy-intensive industries are protected against exploitation. I'm open to formulas that can work," said Edward Markey (D-Mass.), chairman of the House Select Committee on Energy Independence and Global Warming, declining to stake out a position on the various options.

But a marathon week of hearings Markey hosted with House Energy and Commerce Chairman Henry Waxman (D-Calif.) to explore proposed sweeping cap-and-trade legislation led lawmakers no closer to a winning equation.

One by one, company officials stepped up to warn Congress about the dangers their businesses face under proposed climate change law and proposed a range of ways to soften the blow.

Rep. Steve Scalise (R-La.) said a major steel manufacturer currently is wavering between building a $2 billion iron plant in his state or in Brazil, depending on U.S. legislation. He nodded sympathetically as a steel union official argued that taxing imports from non-compliant countries could level the playing field. And California Republican Rep. Darrell Issa argued that unless America imposes a carbon tariff "we simply export jobs."

No consensus within U.S. industry, either

But another Republican, Oregon's Rep. Greg Walden, said he is concerned that such a move would be challenged under the World Trade Organization. Indeed, many analysts fear a carbon tariff would spark a trade war.

Walden pointed specifically to the tariffs Mexico is now slapping onto U.S. exports, retaliation against U.S. laws restricting Mexican trucks on American roadways.

"We are painfully recognizing that tariffs matter," Walden said. "Punitive effects can be hard on our producers."

Industry itself also appears at odds still on the issue. In a recent interview, American Chemistry Council President Cal Dooley said his group opposes a carbon tariff, arguing it would disrupt trade flows.

"It will inevitably result in some unintended negative consequences for our industry," Dooley said.

But Tom Conway, international vice president of the United Steelworkers, told Congress he thinks a "carbon tariff" on foreign imports is the only way to keep U.S. industry competitive until China and others start meeting emission targets. He likened it to a company that offers severance pay, saying, "if you don't lay anyone off, you don't need it."

How Congress crafts domestic legislation is part of the political equation that must be worked out between America and China over climate. Looming in the background, though, is the international treaty process, in which many of the same concerns will play out on a global scale.

Currently, the Kyoto Protocol calls upon 37 industrialized nations to reduce greenhouse gas emissions. It does not force developing nations -- even fast-growing ones like China and India -- to curb global warming pollution. The United States never became a party to the Kyoto pact, largely because of that omission.

Now things appear to be changing. The Obama administration has vowed to work toward a new treaty, and China has given signals that it is ready to make strides on its own. Indeed, a number of U.S. analysts argue that China already is far ahead of America in energy efficiency standards and exploring new low-carbon technologies.

What does China want?

All this provides fuel for a messy, table-pounding debate, one that doesn't appear politically ripe enough to be steered toward a consensus.

"I don't think there's been a focused discussion about precisely what the United States would like to see from China in an international agreement," said Elliot Diringer, vice president for international strategies at the Pew Center on Global Climate Change.

China's argument against taking legally binding committments to reduce emissions is twofold. Leaders there point out that China did not cause the bulk of historic emissions, so they say it should not bear the brunt of the climate burden. And, as a still-developing nation where millions continue to live without electricity, China maintains that it should not be forced to make any agreements that will stunt the country's economic growth.

Some, like Dooley, are sympathetic to that line of reasoning. Dooley said expecting China to reduce emissions from 2005 levels in the same way that the United States might is "not equitable"; he is pushing instead for free allowances.

"For some of these rapidly growing economies, its unrealistic for us to expect them to reduce their total emissions," he said. "The question is, how do you ensure that you have an equitable system?"

Similarly, Rep. Gene Green (D-Texas) said he doesn't expect China, India and other non-industrialized nations to reduce emissions outright and immediately. "After all, they're developing countries," he said. And Rep. Charles Gonzalez (D-Texas) said the United States should move forward on its own to show developing countries that "there are advantages" to moving to low-carbon growth.

"If the attitude is, 'We will not move forward until others can demonstrate some kind of tangible action,' then no one moves forward," Gonzalez said.

Others are less receptive to China's position.

"China's argument really is, 'Hey, you guys got away with it for 50 years, and now it's our turn.' Well, the planet can't handle that," the United Steelworkers' Conway said.

But they and others are still punting on the big question still on the negotiating table: What should China do?

Some analysts are pressing for a deal in which China adopts tough energy efficiency measures. Under that route, its emissions won't go down, but they would be lower than if China stayed on its current path. The country would ultimately be asked to take actual cuts, but likely not for some years. In the meantime, it could become eligible for certain types of aid and funding if it took even tougher -- and verifiable -- action than officially required.

A number of other developing countries like India will push China the other way. They oppose any emissions requirements at all. Meanwhile, conservatives in the United States want China and others to take on far more stringent requirements.

What does the U.S. want?

Walden, who said he believes competition from China is a serious threat, said he doesn't want to see a global pact that "treats China and India as a separate category." But as for what the countries should do, he said only, "they could start by living by the same air quality standards that we have."

Green said the domestic cap-and-trade bill is his top priority. Asked what actions he would like China to take, he said, "We have to deal with our [system] first."

Over the past several months, as U.S. lawmakers have started to delve in earnest into the international negotiation process, a small army of climate change analysts has pounded the halls of Congress explaining some of the sweeping measures that developing countries already are taking to combat climate change. China, for example, has set one of the most ambitious energy efficiency goals in the world. It is poised to be come the global leader in electric cars and is spearheading research in fuel-cell technology, solar energy and other low-carbon growth.

Little of that appears to be sinking in on Capitol Hill, where lawmakers and industry leaders alike said they are not impressed with China's movement on climate change.

"They're not doing anything right now," Rep. Mike Doyle (D-Pa.), who favors rebates to U.S. industries that meet and exceed energy efficiency goals over imposing an import tariff.

Conway said he "assumes" China is taking some measures to address its now-soaring emissions, but said, "I also know that they keep popping up power plants. There's a bit of a Wild West mentality about their growth rate there."

Lee Lane, a fellow at the American Enterprise Institute, told Congress that he believes imposing a domestic cap on carbon hurts America's bargaining position in the U.N. negotiations. At the same time, he charged that nothing the U.S. does will "change the attitude" of China, India and others.

Charles Ebinger, a fellow at the Brookings Institution think tank, said most U.S. policymakers remain uninformed about the strides China is making on climate change. And, he said, he's not surprised that U.S. lawmakers are still debating how far they want to see China and others go in the international agreement.

Said Ebinger, "I don't think the United States is clear on what it wants to see from itself."

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