This blog will remain quiet over the next several weeks as the author is also working on some substantial papers about low carbon issues, not to mention some summer relaxation.
Angela
Merkel has indicated she will not shrink from confrontation with Trump in the
forthcoming G20 talks, where free trade and climate change are both on the
agenda. I suspect this is a good demonstration that trade, energy and climate
will increasingly be interlinked in international affairs. Trump of course has
unconventional notions of what free trade actually is, and, albeit somewhat
incoherently and inconsistently, seems wedded to the view that the threat of
climate change is some kind of hoax. Nations that have committed to Paris and
are following through on low carbon technology and investment are not going to
take kindly to unfair competition from producers who can undercut them by
refusing to take climate policy seriously.
Some economists have even gone so far as to propose border adjustment
taxes, a form of tariff on imports, to level the playing field. Trump’s
position is in any case inexplicable even in normal rational terms of US
self-interest. But this row will also put the UK’s own Brexiters somewhere
between a rock and a hard place. Will they go with the rest of the world, or
will they follow Trump, the DUP, and the apostles of right-wing fundamentalism
– Lawson, Redwood, Rees Mogg etc, in the delusion that the clear messages from the
science on climate change are simply wrong?
One of Trump’s most important
bases for political support is the “rustbelt” regions of coal and steel, which
have suffered dramatic economic decline in recent years. Part of the story, for
coal at least, is that it is being pushed out of the energy mix in the US by
the success of fracking in making the US close to self-sufficient in oil and
gas. Inter alia this has also had some knock-on effects, reducing the price of
coal on world markets, and increasing coal consumption in some EU countries. So
trade has been at least a partial relief for a hard-pressed US coal industry.
More generally Trump’s
policies seem to care little for the “left behind” in the rustbelt. One possible
reconciliation, between declining coal and a rising urgency for action on
climate, might have been investment in carbon capture technology, widely seen
as an essential technology for a low carbon future, simultaneously protecting
or even increasing domestic coal demand and providing new jobs in
infrastructure, but that option has not even featured on the radar. Trump
prefers to stick to the unthinking slogans of his campaign, professing support
for American jobs while doing little in reality to support the “left behind”.
In fact an isolationist US that ignores new low carbon technologies will most
likely cost American jobs, probably in the short term and certainly in the long
term.
Brexit, Free Trade and the
Hard Right in the UK
But another interesting
paradox is the position of British politicians now trying to take the UK out of
Europe, and out of the single market and customs union, in the interests of
more free trade in a global environment that will be increasingly unfriendly to
countries that choose to ignore their responsibilities on carbon emissions. An
important part of the “official” argument for leaving the EU was for free trade
with the rest of the world, but a very large part of political establishment support
for Brexit also coincided with vigorous opposition to taking any action on
climate – Lawson, Redwood and Rees Mogg being just three of the more extreme
polemicists in this area[1]. Outside the
“establishment” UKIP and Farage have followed the same line, and I drew
attention in earlier postings to the close correlations between support for
Brexit and opposition to climate policies. This was evident not just among
politicians, but among Leave
supporting economists, including Leave’s most prominent economists Patrick
Minford and Roger Bootle, who argued that exiting the EU would enable the UK to
escape EU regulations linked to climate change.
To be fair to Minford, he was
at least in some respects consistent, arguing both that trade deals, post
Brexit, were an irrelevance, and that the UK should accept the further decline
of its manufacturing base, concentrating instead on services. But,
unsurprisingly, that has not been the Leave political line, nor would it have
played well with Leave voters in the North of England.
May’s government, faced with
the appalling consequences of actually leaving the single market and the
customs union, is however desperate to be able to demonstrate the prospect of a
lucrative new trade deal with someone else. Step up to the plate, the UK’s
largest trading partner after the EU – the USA and Mr Trump. Never mind the negative
sides of such a deal for British farmers and consumers, the reality is that Mr
Trump appears to believe in bilateral balances, the next best thing to barter
in the modern world. Since the UK has a surplus with the USA, one of the few
major economies for which this is true (it is in deficit with the EU for
example), this looks like a recipe for disaster in any trade deal. Opposing
Trump on climate matters is hardly going to help.
In fact May is now signalling
solidarity with Merkel on climate at least, although whether we should put this
down to the UK’s legal obligation under the Climate Act, or to a growing
realisation that perhaps the EU does matter after all, not to mention global
climate, is not clear.
Trade, Climate, and Carbon
Taxes
If nothing else the prospect
of conflict on both climate and trade, in the forthcoming G20, demonstrates the
potential for close political connection between the two. But the inseparability
of the issues has always been clear, however much that may upset the
ideological position of most of the Brexiters. . A corollary of “free and fair”
trade means, in a post Paris world, going along with what is now the global
consensus on climate. Defaulters cannot be allowed to compete on an equal basis
with countries who are taking measures that may damage their competitive position.
This idea also sits behind the EU’s understandable, though not very effective
or successful, attempts to establish an EU-wide arrangement for trading
emissions. This at least provides a level playing field for intra-EU trade.
Two Oxford economists, Hepburn
and Helm, have long proposed, most
recently in a February 2017 letter to the FT, a carbon border tax. Lakshmi Mittal made the case for a carbon
border adjustment to put European steel on a level playing field with global
competitors, to inhibit “leakage” of emissions to other countries. Hepburn and
Helm simply extend the argument to other energy or carbon intensive sectors. It
is increasingly clear that carbon taxation regimes are likely to be more
effective than rather inflexible emissions quota trading. Needless to say, such
a regime would have major ramifications for trade. Not least it would have
demolished the cost advantages for EU generators in switching to cheap US coal
dumped on world markets. Even if it has yet to gain much political traction,
the idea of carbon border taxes emphasises the close interactions of trade and climate
policies.
[1]
The Brexit trio of Johnson, Gove and Davis also have form in this area, but are
somewhat more nuanced.
