As Congress considers capping carbon emissions, industry representatives say the plan could wipe out the U.S. economy unless the playing field is leveled between domestic and imported goods.
Both the House and Senate are currently looking at implementing a nationwide cap-and-trade system in an effort to drastically cut carbon emissions. Under such a program, the amount of total emissions would be capped at a certain level each year, decreasing incrementally over time. Businesses would be allotted a certain share of emissions but could buy permits to emit more from businesses that kept their emissions below required levels.
The effort could help mitigate climate change, but some worry the costs of such a program will outweigh the benefits, including Rep. Fred Upton, R-Mich.
"I am not in favor of the cap-and-trade systems currently being circulated because they could indeed harm the economy and send jobs overseas," Upton said at a hearing Wednesday of the House Subcommittee on Energy and Air Quality.
U.S. manufacturers and some economists worry the increasing capabilities of developing economies, like China, could topple domestic industries forced to operate under a carbon cap. Production costs within a cap-and-trade system would undoubtedly rise, making U.S. products less competitive in the worldwide marketplace, said Michael Morris, president of American Electric Power, one of the largest U.S. electric utilities. The fear is that American jobs will be swallowed up by emerging economies, like China, where production is cheaper -- and less energy efficient.
"(A poorly conceived system) would result in the worst of both worlds, namely the loss of American jobs and industries, along with rampant growth in greenhouse gas emissions elsewhere in the world," Morris said.
To combat this dilemma, American Electric has proposed a strategy to encourage developing countries to enact carbon controls. The plan, co-authored by the International Brotherhood of Electrical Workers, urges Congress to incorporate trade measures into any cap-and-trade legislation.
Under the IBEW-AEP proposal, producers in other countries would have to purchase "international reserve allowances" in order to sell their products in the United States.
These allowances would be similar to the emissions credits or permits U.S. producers would have to purchase in order to emit CO2 under a cap-and-trade system. The allowances only apply to greenhouse-gas intensive products, such as iron, steel, aluminum, cement, glass and paper.
Producers in countries that take "comparable action" to limit their greenhouse gas emissions would not have to buy the allowances.
"The hope would be that (emerging economies) would implement a comparable cap-and-trade program in their countries so that they wouldn't have to pay the import allowances as they came into this country," Morris said. "That's the notion of the carrot side of our program."
Another proposal to help U.S. businesses has also caught congressional attention. Conceived by segments of the steel industry, the plan would establish "carbon intensity standards," or limits on how much CO2 could be emitted in the production of specific products. These standards would apply to both domestic and imported goods, said Jim Slattery, partner at the law firm Wiley Rein, testifying at Wednesday's hearing on behalf of the American Iron and Steel Institute and the Steel Manufacturers Association.
"While we cannot force other countries to control their emissions, carbon intensity standards would encourage both domestic and foreign producers to do so by conditioning access to the U.S. market on compliance with the standards," Slattery said.
But the measures included in both plans could get the United States in trouble with the World Trade Organization, which monitors trade between countries, said Christopher Wenk, senior director of international policy with the U.S. Chamber of Commerce, a federation of businesses.
"If there are trade restrictions that another country feels … there are endless ways that there could be some case brought before the WTO," Wenk told United Press International.
Any time a country passes a law that another country feels restricts its ability to trade, the offended country can take the issue to the WTO, which decides whether the laws under consideration conflict with international agreements.
The two most likely candidates to take a cap-and-trade dispute to the WTO are China and India, Wenk said, but other countries might as well.
One sure way to get embroiled in a WTO case is to implement import restrictions right away, as the steel manufacturers' plan proposes, instead of waiting for a period of several years, as the IBEW-AEP plan suggests, said David Doniger of the Natural Resources Defense Council, a non-profit environmental group.
"One of the requirements under the WTO is that before a country uses a trade measure … they have to negotiate with the other countries involved," Doniger told UPI. "Given the complexity of the climate change problem, that's going to take a number of years."
Doniger said he speculates around 12 years be a reasonable timeframe.
However, the administration opposes the import provisions altogether, according to a letter from Susan Schwab, the U.S. trade representative, sent to several members of the Energy and Air Quality Subcommittee.
"We believe this approach could be a blunt and imprecise instrument of fear … that will take us down a dangerous path and adversely affect U.S. manufacturers, farmers and consumers," Schwab wrote.
Even absent a WTO battle, U.S. trading partners will likely retaliate if provisions are placed on imports, said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, a non-partisan research organization.
"It's going to be a two-way street," Hufbauer said. "If we go ahead and start imposing these (measures) willy-nilly, we can expect to receive a return payment."
The result, he said, will likely be a series of trade skirmishes and even trade wars, with the ultimate goal of fighting climate change getting lost in the scuffle.
But proponents argue the import provisions aren't trade restrictions, including Pat Hemlepp, spokesperson for AEP.
"Our proposal isn't designed to be any sort of trade-leveling mechanism," he told UPI. "It would just simply address the greenhouse gas standard and make sure there is a comparable charge for the carbon emitted during production of their product that the U.S. industry had to pay in order to reach lower emissions."
