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How will an emissions reduction policy affect U.S. industries' competitiveness in the international marketplace? During today's OnPoint, Rob Bradley, director of the International Climate Policy Initiative at the World Resources Institute, discusses a new report focusing on the steps the United States should take to secure its competitiveness and insure carbon emitting industries are not devastated by an emissions reduction mandate. Bradley analyzes proposals circulating in the House and Senate and discusses which would be best for maintaining competitiveness and engaging developing nations.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Rob Bradley, director of the International Climate Policy Initiative at the World Resources Institute. Rob, thanks for coming on the show.
Rob Bradley: Good morning, Monica. Good to be here.
Monica Trauzzi: Rob, WRI, along with the Peterson Institute, recently published a book on the link between international competition and U.S. climate policy and how U.S. industry's competitiveness could be impacted by the climate policy that we choose. So, which sectors do you think are most vulnerable when we're talking about capping emissions?
Rob Bradley: We're talking about actually a relatively limited set of sectors here. We're talking about sectors that are both highly exposed to international competition and also are quite carbon and energy intensive in the way that they produce goods. So these are sectors like iron and steel production, aluminum, some of the basic chemicals, cement. It's a set of sectors which together account for something like 2 percent of U.S. employment.
Monica Trauzzi: So, does that mean that it doesn't matter or it's not that big of a deal because it only such a small amount of our employment?
Rob Bradley: Not at all, but what it does mean is that there are things that we can do within the structure of climate policy that are going to help us protect those sectors from any sort of particularly wrenching change that's going to happen and it's important to do that. These are legitimate concerns. These are real jobs that we're talking about. But because it's a relatively discrete part of the economy, you can take targeted measures that are going to deal with that. I think where U.S. legislation, so far, has been going has been, to a certain extent, to take a sledgehammer to a fly and to try and do broad-brush policies that are perhaps going to have more significant negative ramifications.
Monica Trauzzi: There have been all these economic analyses of what the Lieberman-Warner bill would do and various pieces of legislation. So, do these analyses maybe go too far? You're only talking about 2 percent of jobs, 3 percent of the economy, and these analyses are saying that a bill like that could have devastating effects.
Rob Bradley: Yes, as usual, in any Washington discussion there's a hell of a lot of lobbying going on, right? And it tends to be that before any piece of environmental legislation is passed there are apocalyptic numbers put around with, let's say, some fairly racy assumptions. In general, the American economy has tended to show that it has a huge capacity to innovate and to build the new kinds of technologies, the new kinds of jobs, the new kinds of industries that will help industry and the economy thrive under these new conditions. So the role of the American economy in shaping renewable energy, more efficient technologies, and so forth should not be underestimated. This is something that if we do it right can be a generator of jobs not a destroyer. Now, that being said, there are these sectors of the economy, things like iron or steel production for instance, which do face these sort of near-term constraints. In other words, if the U.S. economy is taking on some of these costs, which, by the way, the Europeans have been doing already for several years now, but which perhaps Chinese competitors, Indian competitors, and so on are not going to take on in the next few years, how do we cope with that? These are sectors which, because they're internationally traded goods, you can lose marketshare awfully fast. And I think there is an important and creative discussion going on in policymaking circles now about how you might do that. I would say our analysis suggests that the way that is mostly being followed at the moment is probably not the right answer to that question.
Monica Trauzzi: OK.
Rob Bradley: So, briefly, what the proposal that is included in bills like the Lieberman-Warner bill proposes to do is to essentially allow the administration or the U.S. government in general to classify other countries as, quote, "doing enough" or "not doing enough" on climate. And if you're one of the bad guys, then imports of your steel for instance would essentially have to buy allowances in the U.S. system. It's like putting a tax on the imports of carbon intensive goods into the United States from those countries. The idea of doing that is twofold. One is to provide some protection from international competition for these sectors in the U.S. so that the U.S. steel market is not sort of flooded by imports from countries that don't have those kinds of carbon constraints. And the second thing is the idea that it will actually help entice or even force some of those major developing countries to the negotiating table and get them involved in climate policy. In other words, if China sees a threat that the U.S. market will be closed to it for its steel experts, it will come to the negotiating table and try and seek a deal. The trouble is that you take a closer look at the numbers and neither one of those claims really adds up. Let's take, first of all, the idea that China is going to be whipped to the negotiating table, 0.7 percent of Chinese steel production ends up in the U.S. in the first place. So, the U.S. domestic market is really not a significant part of the Chinese steel sector. Secondly, the Chinese themselves are already seeking to discipline exports of steel. If you're China and you're trying to generate jobs and deal with energy security problems and deal with pollution problems, you do not want to be the world's steel producer. So, in fact, the proposal in the U.S. legislation is to put an import tax on something which last year the Chinese already put an export tax on at their end. So, this doesn't suggest that they're going to come chastened to the negotiating table. Is it going to protect U.S. producers? Well, probably not, first of all, because the growth in the market for steel, in fact, isn't in the U.S. in any case. It's not really about accessing the U.S. steel market; it's about are U.S. steel producers playing a role in the very growing markets, which are, in fact, places like China, places like Southeast Asia. And so protecting the U.S. market doesn't actually help you get to them. I think, more generally, the big threat to U.S. competitiveness though is that by taking this very aggressive stance based around trade restrictions early on, the chances are high that we will end in a sort of very antagonistic and confrontational discussion around trade more generally. And the U.S. actually has a huge range of industries that benefit from that trade and it's clear that that could be a slippery slope. Again, the thing to bear in mind is that the E.U. has been having this discussion for a long time. European companies have long had these costs imposed on them and they have had this discussion about imposing these kinds of taxes against the United States, which has long been a holdout from climate policy. Now, the discussion has generally been closed down by players like the U.K. and the European commission who have said, listen, you don't want to get into a trade war over this issue. On the other hand, if the U.S. already concedes the principle and says this is a good idea in its own legislation, then what is to stop the Europeans imposing this kind of barrier tomorrow?
Monica Trauzzi: So, this argument that we should wait to act on climate change until China decides to act, is that a valid argument?
Rob Bradley: It's not a valid argument and it's also based on a false assumption, which is that China is not doing anything and is not interested in doing anything. First of all, we have to recognize that of the countries that have put these gases into the atmosphere and generated the problem of climate change the United States remains well in the lead. The average American emits four or five times more greenhouse gases than the average Chinese person. China is clearly critically important to this discussion, but there is every reason for the United States, which has far more economic resources and a higher level of development to take the lead in that. It's not the American way to wait for developing countries to step up to the plate before taking on leadership on major global issues. And that's the theme we've heard a lot in the Senate. Secondly, the Chinese get it. They published a climate change program last year in which they detailed at great length the threat of climate change to China. Frankly, the threat of climate impact is greater in China than it is in the United States even. They have 400 million people living in low-lying, coastal or river delta areas and these are communities under very serious risk. China has 22 percent of the world's people and 8 percent of the water. Water supply constraint is a real problem for them and they know that climate change will make it worse, so they're already doing things. They have very ambitious renewable energy targets. They're pushing out nuclear power very fast. They have energy intensity targets. They have tougher ...
Monica Trauzzi: They also use a whole lot of coal.
Rob Bradley: They use a whole lot of coal, just like we do in the United States. That is the resource that they've got there, but they have, for instance, more ambitious energy efficiency targets on their vehicles than we do in the United States. And, again, this is starting from a basis of far lower levels of development, so their capacity to act…you know, they're still getting electricity out to people who don't have it at all. This is a very different dynamic at that stage in their economic development and, even so, China is stepping up to the plate. There's a great opportunity here for us to engage in a really constructive environment with the Chinese. The U.S. and China both have this coal challenge. What are we doing with them to collaborate around getting clean coal technologies deployed? The Europeans are collaborating with them. The level of U.S. engagement is still much lower. If we start this discussion with a trade fight it's hardly going to help us have that more constructive engagement.
Monica Trauzzi: So, we discussed the Senate, the Lieberman-Warner bill, are there any other proposals out there in Congress, there's some circulating in the House right now, that you think do a better job in terms of maintaining our competitiveness?
Rob Bradley: I think there are some ideas floating around and they haven't quite made it into bills, but they're being explored, particularly on the House side at the moment. One option that's being explored is of the revenues that you get when you're actually selling these allowances to businesses in the first place, what are you going to do with those? And there's a lot of…when a large amount of money is being generated there's a big food fight as to what happens with that money. But, again, it comes down to the fact that we're talking about a manageably sized set of sectors here. Some folks on the legislative side are exploring the option of taking some of those revenues, returning them to the sectors that are covered, doing that on the basis of how efficient they are. So, there's still the incentive there to be a more efficient steel producer in the United States. The more efficient guys will have a financial advantage relative to the less efficient guys. But the sector, as a whole, will be compensated for the cost of complying with this legislation. The potential advantage of that approach is that, as I say, it still gives the incentive for them to get better, but it perhaps helps them manage their overall costs and, therefore, doesn't put the sector, as a whole, at a disadvantage relative to their international competitors. One of the ways in which that's a lot more effective is that that will also affect, of course, their cost of production when they're trying to get into export markets, which, at the moment, these trade restrictive provisions don't do anything to ensure. It also is clearly a less confrontational approach than deciding that the United States, which let's not forget, has been the holdout on climate policy over the last eight years, is going to say, right, on day one we will judge who is naughty and who is nice.
Monica Trauzzi: OK, this is a very interesting discussion and certainly a big piece of the puzzle. We'll end it right there. I thank you for coming on the show.
Rob Bradley: Thank you very much for having me.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
[End of Audio]
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