China’s look at a carbon tax – the connection to developed country border measures

China has been causing quite a stir lately in the environmental community through its proposed carbon tax. As is the case with China’s tightly controlled media landscape, this announcement came somewhat from the blue and caught many by surprise. Especially the announcement that this decision might be taken before the current five year plan is out (2011-2015).

What does this mean? Well, reactions have generally been very positive and this is seen by many as a serious attempt by China to curb their very sizable emissions profile. Of course, it is early days still and details will matter. However, an article in the Wall Street Journal caught my eye that commented on this turn of events. You can find it here. I choose to bring it up here because I think it points to a general sentiment that I have observed for some time now with regards to the rather widespread sentiment of wariness that is displayed towards new Chinese policy measures. Especially ones that have clear foreign policy implications.

In the article, the writer essentially makes the point that China is launching their proposed carbon tax as yet another policy tool designed to be a ‘just enough to shut people up’ mechanism. But one that ultimately does not actually solve (or even is intended to solve) the problem of climate change first and foremost.

This exact same line of argumentation can be seen on the currency exchange rate manipulation side of things where there is a sizable frustration with China’s willingness to balance only just enough to give hope, but not enough to actually cause a sizable change in the skewed valuation of the renminbi.

These arguments tread perilous and rather emotional waters. Consequently, as is the case with such “soft” sides, they tend to be sadly overlooked, despite their often high degree of importance in the actual functioning of forming personal opinion.

There is no doubt that it is not unknown for countries to indeed engage in strategic politicking of the type described above. Every country engages in this, indeed must engage in this, to a certain degree for at least reasons of polity, if not outright advantage. However, I am slightly disturbed by the China bashing undertone that runs through many of these arguments. China is very aware of the threat of climate change. Their coastal areas and water supplies will be badly hurt by the estimates of climate models with tens of millions of their citizens adversely affected by its consequences. China is neither ignorant of this threat from climate change nor uncaring for its population.

The more simple truth may be that China simply is in the tough spot of needing to successfully balance both high growth (in the material sense that it is currently defined) and strong mitigation and adaptation measures, with both of them being very important policy priorities. Simple point? Alas, it is an unfortunate contingency of the human condition to face surprising hardship whenever one needs to focus on two things at the same time.

So if they simply have double priorities, what then of these virulent accusations that essentially portray China as a sneaky political strategist at every turn? In my opinion, these are essentially fear-based arguments. I believe they have their roots in fears over competitiveness. It harkens back to the position that China is generally considered to be in, moreso than whatever the actual gripe may be at the moment. The truth, as so often, is in the context in these matters.

But my first reaction to the Chinese carbon tax was not political, but technical. On the legal technical side of things: How might this affect the measuring of so called ‘upstream carbon’?

Among trade lawyers looking at the permissibility of border climate measures, it is well known that one of the main bones of contention is trying to institute an instrument that fairly levels the carbon playing field for imported goods. To do this unilaterally is, to put it mildly, difficult. A large part of that difficulty comes from trying to accurately gauge the carbon “content” of foreign produced products so as to make sure they are not discriminated against due to the climate border measure. With this carbon tax, will we see the Chinese open the door to make such calculations more feasible by perhaps allowing the chinese domestic system to be used as a yardstick for fairness appraisals in developed country border carbon measures? If so, how exactly? The proposed carbon tax only deals with major energy emitters of course, but somehow these taxes must be calculated and levied with the system perhaps expanding into other areas over time. The procedure in doing this might be of great interest in creating a larger degree of certainty in what might constitute permissible border measures down the line. This is an interesting question, that still holds many uncertainties, but one that also will benefit over time from more detailed specifics.

As always, interesting times ahead in the field of trade & environment.

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