Europe Will Exclude Us From Super Secret Climate Fun Club Over My Dead Body
Exciting, boring things are happening in the world of global climate policy
When I was at EPA, I developed a cynicism for climate change “commitments”. Many of the speeches I wrote patted a city or corporation on the back for making an easier-said-than-done commitment that might happen or might not. We’d go to West Birkenstock, New York, population 8,000-well-off-retirees-and-three-high-school-kids-who-couldn’t-wait-to-leave, and meet their very-friendly Earth Mother mayor, and we’d act like West Birkenstock had cured polio (again!) by promising to cut water usage by 20 percent by 2450.
I’m exaggerating, of course. But only a bit; some commitments were laughably vague. And I don’t want to completely sneer at the concept of commitments, because sometimes they increase political pressure to take real action. And not all commitments are distant and unenforceable. But the point stands: It’s easier to make the commitment than to actually do the thing.
The Paris Accord is nifty, but toothless. We already had one major world leader (ours) say “nah, screw this”, and there wasn’t much the world could do. Or, at least: There wasn’t much that they did do. But all of a sudden, the politics of global carbon reduction seem to be changing. And by “all of a sudden”, I mean “within the last few days”. It’s been pretty remarkable.
You might have seen a headline like this one from NPR on Wednesday:
Could a headline possibly be more boring than that one? Key words include “Europe” -- I’m already drowsy; "plan” -- so there’s reading involved, great; and “imagines” -- so this isn’t anything that has actually happened. This is, like, the EU president describing a dream she had, or members of the European Commission joining hands and singing John Lennon’s Imagine, yes?
Actually, no: The E.U.’s plan contains actual policies, not just commitments. And there’s something that could be a complete game-changer buried in the 15th paragraph of the NPR story:
I won’t argue that keywords like “duties” and “border adjustment mechanism” crank the excitement dial up to 11. But I will argue that this might be a major deal. Here’s why I think that…
Climate change is a global problem (I promise that the observations will get sharper from here). We sometimes become overly-focused on national solutions; we ask “how can we reduce our emissions?” And that’s all good, but I think it misses the broader picture: The real ballgame is mostly about developing green technology. Climate change will be solved when low-carbon technology is the best and most cost-effective technology, and not before. So, my favorite policies are those that not only reduce greenhouse gas emissions in the short term, but that also incentivize the development of technology in the long term.
It looks like Europe is turning up the dial on emission reductions. Part of the European Commission’s announcement on Wednesday was a package of legislative proposals called “Fit for 55” (as in cutting GHG emissions by 55 percent relative to 1990 by 2030). Full disclosure: I have not read all of Fit for 55. I worry that if I try to do so, I will throw myself under a commuter train. But the summaries I’ve read make it sound pretty serious; Jennifer Tollmann, an analyst for climate advocacy group E3G, said it’s “not just a big promise.” Of course, Fit for 55 is a long way from becoming law,1 and passing major legislation in the EU is about as difficult as passing the Venus de Milo through your urethra. “Fit for 55” could easily become “Fuck it: 44” or “This’ll do: 32”.
Still, Europe is gunning to be the least-carbon-intensive economy in the world. Which could cause a problem for them: If their companies are subject to strict and costly GHG reduction measures, but foreign competitors aren’t, Europe would be at a disadvantage. The solution: a carbon tariff, a.k.a. the “carbon border adjustment mechanism” cited in the NPR story. Basically, it’s a tax on imports from countries with lax GHG reduction policies. So, with a carbon tariff, a company making steel in China using super-cheap, carbon-spewing technologies wouldn’t be able to sell it for a bargain price in the EU. The steel would be subject to a tax that would make it basically the same price it would be if it had been made in Europe. You might as well just make your steel in Europe -- next time I need to make 500 metric tons of molybdenum steel, I’m going to Belgium.
The tariff is, again, a proposal, not yet a law. Would the EU actually do this? I think yes, they definitely would. Because think of the politics: This isn’t some Euro-hippie stuff about how we all need to recycle our mucus and attach sails to our cars. This is nationalism! PROTECTING OUR VITAL INDUSTRIES! I can picture deep-red labor unionists and shaved-head nationalists all across Europe pounding their fists on rostrums and yelling: “We can’t let hard-working Europeans -- who work their fingers to the bone 35 hours a week, ten months a year, until the ripe old age of 49 -- get out-competed by the AMERICANS AND THE CHINESE!” Economic nationalism makes for potent talking points anywhere in the world.
This could start a chain reaction. If Europe taxes foreign imports, other countries have an incentive to tax European imports. And the chain reaction may have already started; The EU made their announcement on Wednesday morning, and by Wednesday evening this headline was in The New York Times:
Europe, the U.S., and China are watching each others’ moves closely. There’s clearly a danger of things devolving into a Trump-style trade war; in the world of international trade, a “fuck you” is almost always followed by a “no fuck YOU!” There are definitely elements of this that smell like protectionism, and people who worry about that type of thing (like me) are, indeed, worried about it. But I actually don’t think this is a thinly-veiled trade war -- I think something else is going on here. I think we might be seeing the realization of an idea that’s been floated by various people, especially Nobel Prize-winning economist William Nordhaus. I suspect…no, I think…hell, I’m 98 percent certain I know what’s happening: Europe are trying to form Super Secret Climate Fun Club.
Nordhaus didn’t call his idea Super Secret Climate Fun Club -- he just called it “Climate Club”, because his Nobel Prize was in economics, not branding. But I give him permission to use my much-better name. His idea is that countries could create a low-carbon trading bloc -- a “club” -- in which the benefits of membership outweigh the costs. So, in a way, not radical: Every club from Costco to the Guy Who Plays Mr. Belvedere Fan Club is based on membership being worth the price of entry. But it’s a radical idea when applied to global GHG emissions, because our efforts thus far have relied on oh-so-ephemeral commitments. Kyoto and Paris lack enforcement mechanisms. But a club that rewards members with low tariffs and punishes non-members with high tariffs changes the incentive structure. That’s key; my personal belief is that any time we find ourselves relying on the better angels of our nature, we’re screwed.
If Europe starts Super Secret Climate Fun Club, the United States would have three options. First, we could just live with restricted access to the European market, though there’s a slight chance that one or two lobbyists might have something to say about that. Second, we could slap retaliatory tariffs on the EU, which is a great way to make everyone poorer, and might not be WTO-legal.2 Third, we could “join the club” by reducing GHG output. Would SSCFC be enough to get us to do that? I don’t know -- that question layers hypotheticals on top of hypotheticals. But it would definitely change the calculus.
The EU is probably going to start this club no matter what. But they clearly want the US and China to join. Here’s Bas Eickhout, a European lawmaker from the Netherlands who was involved in drafting Fit for 55, addressing American concerns about the plan:
“To the United States, I would say if you are so worried, then maybe it is time you come forward with very credible plans on decarbonization of your economy. We have heard a lot of announcements, but we have not seen many concrete policies.”
Okay, first off, Bas: This is kind of an “I can make fun of my family but you can’t make fun of my family” situation. Please get off of your high-but-still-below-sea-level-because-you’re-in-the-Netherlands horse, sir. But, you’re right: We’ve done just slightly more than jack shit. And I respect that your goal is to reduce global emissions, so of course you want us (and China) to join. And I get that your strategy is to neg us until we want to join your club -- you’re following the playbook of the 21st century’s foremost practitioner of realpolitik: Mystery from The Pickup Artist.
A million questions still need to be answered. Will Fit for 55 get watered down? Will the name lead to a lawsuit brought by a maker of workout DVDs for middle-aged women? Is a carbon tariff WTO-legal? What goods would it cover? Will the EU be able to solve the logistical problems that caused them to call a previous tariff proposal “clearly unmanageable”? What’s Mystery up to these days? Will China’s much-touted emissions trading system be legit, or just a smokescreen? How would the US respond to an EU carbon tariff? Will carbon taxes still be about as popular as colon spasms at that point in time? Can the US pass any climate policy before we get rid of the filibuster? How old is Joe Manchin? And what does that translate to in West Virginia years?
That’s a lot of questions. But a universe exists in which a low-tariff, low-carbon trading bloc comes into existence. It wouldn’t require unprecedented international cooperation -- Europe can start the ball rolling on their own. And I think that they will start the ball rolling, because it’s in their interest to do so. Super Secret Climate Fun Club would be what we need: A large market for low-carbon technology. It would encourage innovation, and the more countries join, the better it will work. It’s still a long way from happening, but we moved a lot closer to it in the last few days.
Amending and eventually possibly passing this legislation through European Parliament is expected to be “a years long process”.
Europe’s carbon tariff also might not be WTO legal, but they have a decent case: They can argue that the tariff levels the playing field because restrictive emissions policies put their companies at a disadvantage. There WTO also has exemptions for environmental rules. It’s far from a slam dunk, but they’d have a better case than the US would if we implemented a carbon tariff without first putting a price on carbon in our own country.