Lord Turner proposes border tax to encourage action on climate change

Andy Wimbush is nef‘s Communications Assistant and blogmaster.

Steel manufacturing in Shanghai | Image by 2 dogs via Flickr

You’d be forgiven for suspecting that the Chairman of the Financial Services Authority, Adair Turner, might be some sort of Climate Camp mole (and you wouldn’t be the first: the Financial Times nicknamed him Swampy last summer).

Look back over Lord Turner’s policy suggestions over the last twelve months and you’ll find that they read like an activist’s wishlist. He began his call to tame global finance by accusing banks of engaging in activity that is “socially useless”, and arguing that many financial institutions had grown “beyond a socially reasonable size”. In the same interview, Lord Turner proposed that banks be subject to a tax on financial transactions, pre-empting the Robin Hood Tax campaign. Speaking to nef policy director Andrew Simms on the BBC’s World Tonight in January, he even suggested that the pursuit of economic growth at all costs might become a “false god“. Not surprisingly, we’re completely in agreement: see our report A Bit Rich on the real social value of elite City banking, our publication on the Robin Hood Tax and our various reports on the limits to growth and GDP: Growth Isn’t Possible, Growth isn’t Working and National Accounts of Well-being.

The reality is, of course, that Lord Turner is a figure at the heart of the establishment, who has reached his conclusions not through ideology, but from a long cool look at things as they stand. Now he is back in the news for his suggestion that government should consider a carbon tax on cheap imports from countries not implementing serious climate measures to help boost British manufacturing and encourage world leaders to tackle climate change. From the Guardian:

Lord Turner, who heads the UK committee on climate change, said the government should “rigorously assess” bringing in levies on cheap imports from countries outside the European Union, which are not subject to carbon-related costs such as the EU emissions trading scheme.

Ministers have in the past resisted calls from European counterparts to introduce such carbon levies, arguing they would be anti-competitive. In future, heavy industry such steel and cement manufacturers in the EU will not have to pay for most of their allowances to emit carbon under the trading scheme, unlike other firms taking part. The idea is to protect EU manufacturers and prevent “carbon leakage” – plants being moved to countries which do not have their own trading schemes.

It has emerged that Indian-owned steelmaker Corus, which is closing its Teesside plant, stands to pocket around £250m by selling unused carbon permits. Unions allege that this is why the company does not want to find a buyer for the plant.

Lord Turner said a change of approach was needed. “Business needs a clear and consistent market-based incentive to move towards a low-carbon economy. We can’t solve the problem by giving out emission allowances for free as the only option for internationally trading manufacturing sectors. Border carbon-price levelling should not be excluded, but rather subject to rigorous assessment alongside other options.”

In 2003, nef published a report called Free-riding on the Climate which proposed that since UN negotiations were not delivering the binding agreement necessary for avoiding dangerous climate change, the UK and the EU should consider using litigation or trade measures to force other industrialised countries to cut emissions. The thinking behind the idea is that if some countries are spending money to cut their emissions in industry and manufacturing, then they will be undercut by cheaper goods from other countries that are still using cheap and dirty energy. A border tax on these imports would try to redress the balance. It’s called a countervailing duty, and is permitted by the World Trade Organisation in certain circumstances. Andrew Strauss, Professor at Widener University School of Law, explains:

The Organisation currently allows states to impose countervailing duties when foreign companies ‘dump’ goods into their markets at less than the market value, and to offset the previously discussed competitive trade advantage that foreign companies gain when they receive subsidies from their governments.

So despite seeming like a radical measure, a carbon tax wouldn’t be without precedent in other areas. In fact, nef‘s report pointed out that there was a scheme introduced in the USA to help clean up domestic toxic sites, which was paid for by taxes levied on the petro-chemical industries: the 1980 US Hazardous Substances Trust Fund, popularly known as Superfund. GATT – the precursor to the WTO – decided that the Superfund wasn’t an unacceptable restraint of trade.

When George W. Bush was resolutely refusing to even acknowledge climate change, Caroline Lucas – on nef‘s behalf – asked Pascal Lamy, then European Commissioner for Trade, whether economic measures against the United States would be permissable under existing agreements. He replied that it was a “thought-provoking contribution”, adding:

“There is a clear case for being aware of any adverse effects on our industry and doing everything in our power to minimise these. In that sense, it is relevant also to keep under review the scope for action under WTO rules to ‘level the playing field’.”

Even with President Bush out of the way, a binding international agreement on climate change still seems impossible to reach. Perhaps it is time to reconsider the possibility of border taxes and sanctions against those countries who are still taking a free ride on the climate.

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