China issue to live on after U.S. carbon bill death

By Timothy Gardner - Analysis

NEW YORK (Reuters) - The U.S. climate bill may be dead but one thorny element of it -- possible tariffs on energy-intensive imports from rapidly developing countries like China -- will fester as lawmakers form new greenhouse legislation.

Introduced to the U.S. Congress by industrial players such as power utility American Electric Power (AEP.N) and industrial worker unions, the issue, also known as competitiveness in climate legislation, boils down to two ideas.

First, if the United States embarks on a carbon emissions reduction program, the placement of a tariff on imports of emissions-intensive goods like cement, steel and chemicals would ensure that China and other rapidly industrializing countries do their part on global warming. The tariff would aim to equal the price that U.S. carbon regulation had added to the same products made domestically.

Second, such a tariff would prevent heavy U.S. industries from relocating to other countries that don't regulate greenhouse gases to lower their operating costs.

The U.S. climate bill, sponsored by Sens. Joe Lieberman, a Connecticut independent, and John Warner, a Virginia Republican, which aimed to cut greenhouse emissions by 66 percent by 2050, died on Friday with a procedural vote in the Senate.

It would have added such a carbon tariff, also known as a border tax, or an international reserve allowance, on imports starting in 2020. An amendment to the bill had pushed the imports tax forward to 2014.

Pressure from industry will keep the competitiveness issue alive going forward.

"The concern about tight caps from leading industry is very real," Billy Pizer, director of the energy program at the think tank Resources for the Future, said by telephone. "Something like this tariff is probably going to have to be part of the solution."

NAUGHTY OR NICE

Not everyone agrees. "It won't work. Not a hope," said Rob Bradley, director of international climate policy at the nonprofit World Resources Institute, about carbon import tariffs. He said such a tariff could easily be turned against the United States.

For example, if Washington, which has lagged the European Union on climate policy, eventually regulates emissions, the cost of polluting per metric ton of carbon in the early years of its program would likely be well below the costs in the more mature EU program. Therefore, if the United States institutes its own import tariffs, it could get stung by a similar program in Europe.

He said since the United States is not seen as a global leader on climate, it would be hard for Washington to add disciplinary policy on imports from other countries.

"For the U.S. to stand up and say we'll decide who is naughty and who is nice ... there's just no appreciation in Washington of how much bad feeling that could create," he said.

Still, like many elements of taking action on climate change, other experts said it's a matter of finesse.

"We have to be careful what we ask for," Kelly Gallagher, the director of the Energy Technology Innovation program at Harvard University's Kennedy school of Government, said in an interview. "I would encourage that we think of an approach that encompasses both carrots and sticks."