Leadership lacking on tax

At the rate Kevin Rudd is going, there's every chance tax reform will go the same way as "the greatest moral challenge of our generation".  After two years of telling us Australia would lead the world on climate change, and that Australia would slash carbon emissions regardless of what anyone else did, this week we found out the truth.

On Wednesday the government announced it would maintain its relatively modest target of reducing the country's emissions by 5 per cent by 2020.  One moment "our children's fate -- and our grandchildren's fate" depends on decisive climate change action.  (That's what the PM said in November).  The next moment the Climate Change Minister is issuing a press release saying Australia won't do anything more on climate change until "the level of global ambition [to reduce emissions] becomes sufficiently clear".  (Which is what the minister did two days ago).

It's hard to avoid the impression that the government's climate change objectives were as much about gaining political advantage over their opponents as they were about saving the planet.  Now that the politics of climate change has got harder against a Tony Abbott-led opposition, the fate of our children and our grandchildren has become less important.

It looks like tax reform is being subjected to the same sort of political machinations that climate change policy suffered.  There's the charade of the government refusing to release the report into the tax system it was handed a month ago because, in the words of the Treasurer, the government needs to "examine" the report.  What is there to "examine"?  According to Wayne Swan, the review panel headed by Treasury secretary Ken Henry is "independent".  So if the review panel is independent, and if its recommendations are not government policy, what is the Treasurer afraid of?

Of course it's debatable just how "independent" a review panel can be when two of its five members are public servants.  And the picture becomes even more confused when it is remembered that the person who will be examining
the report -- Ken Henry -- is the person who wrote the report in the first place.  Presumably one of the benefits of the Treasury secretary examining a report he's just written is so he can correct any typos or misprints in its 1000 pages.

What we do know is that the report is 10 centimetres thick and it is printed on A4 paper.  And this we know because these facts were reported in the media at weekend.  But still the public isn't allowed to see the report.  Instead we're treated to a series of selected and carefully positioned leaks, hints and suggestions about what might be in it.

In a speech last week, Henry warned that Australians might have to work longer and pay more tax to pay for an ageing population.  This can only be described as Henry doing the government's dirty work for it and softening up the public for what's coming next.  However, what the Treasury secretary thinks is largely irrelevant.  It's up to the politicians to make the decisions.  Ultimately it's a political choice whether taxes go up and whether we end up working beyond 65.

If policies are to change they will change because of political leadership.

There's not too much leadership in having public servants let loose public policy balloons while politicians stand< at a safe distance.  On the ABC's AM program a week ago, the interviewer pointed out to Swan that Henry's
comments were not "much different" to what Peter Costello said as treasurer in 2003.  At the time, Swan complained that Costello wanted to force employees "to work until they drop".  It's a revealing example of how the process of policy debate has changed under Labor.

Whereas once a Hawke or a Keating or a Howard or a Costello would have braved the challenge of telling the public the facts of life, the task is now left to public servants.

From the Treasury secretary's speech last week we learned what we've long suspected.

He said "it would be prudent to plan on the basis that the tax system will, over time, have to generate revenues to meet substantially larger fiscal costs".  Translated that means -- no tax cuts.  If Henry's review doesn't recommend tax cuts, and if it is only about how to tax more people to get more money for the government, the review deserves to go the same way as the Prime Minister's climate change policies.

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What do Haitians need most? To get away from Haiti

It will take much more than a global outpouring of grief to fix Haiti.  But there is one concrete way rich countries could really help out -- immigration.  Twelve days after the Haitian earthquake, the choices for the poorest nation in the western hemisphere are stark.  Haiti was already an impoverished and virtually ungoverned nation before January 12.

Haiti's poverty has meant it lacks the basic things that make wealthy nations better able to cope with natural disasters -- functioning emergency services, law and order, safe and stable buildings, and supplies that are cheap, abundant and accessible.

So with poverty and the failure of development being at the centre of the Haitian tragedy, it's easy to be cynical when the usual crowd pipes up.  Last week, UK Prime Minister Gordon Brown reportedly asked schlocky American Idol judge Simon Cowell to record a charity single to raise money for Haiti.  George Clooney has hosted a fund-raising telethon, complete with "all of his famous pals", as US Magazine succinctly described them.  And Linkin Park, Alanis Morissette and Peter Gabriel are all donating "unreleased tracks" for a charity compilation.  They're no doubt trying to help in good faith.

Haiti has been a long-term recipient of foreign aid.  Between 1990 and 2005, foreign aid to Haiti came to $US4 billion.  Aid provides about 7 per cent of Haiti's total gross domestic product.  And for the past century, economic growth in Haiti has either been stagnant or declined.  The reasons for this are many.  Extraordinarily bad governments, which in the 20th century seesawed between repressive dictatorship and corrupt plutocracy, have undermined any legal framework for the protection of civil liberties, property rights, or for law and order.

It is for this reason that, when assessing the impact of its aid projects, the World Bank found "in project after project, the reason for delayed implementation or cancellation, is a coup [or] civil unrest".  This has been compounded by the bureaucratic complexity of many aid projects, administrative failures by Haitian governments, and confused priorities on the part of donors.  Future assistance programs will have to directly tackle Haiti's biggest problem -- bad governance -- if they are to succeed.

But if the developed world really wants to help Haiti, we could let as many Haitians as humanly possible work in the West.  We could dramatically expand our guest worker and migration programs.

According to a 2008 study by the Centre for Global Development, Haitian immigrants in the US earn on average six times more than equally educated Haitians who stay home.  It would be more effective and efficient to allow Haitians to move to other countries than wait for the international community or aid organisations or the Haitian Government to repair two centuries of institutional failure.

Immigration away from Haiti will actually help Haiti.  Foreign aid to the country may be substantial, but it is overwhelmed by what expat Haitians send home.  In 2008, foreign governments gave Haiti $US912 million.  Haitian expats sent back at least $US1.3 billion, according to the most conservative estimates.  Other estimates suggest unreported remittances to Haiti might account for up to a third of Haiti's total GDP.

And while much foreign aid is delivered directly to the Haitian Government (which doesn't have a wonderful track record in using it well), these remittances go straight to the Haitian people.

The Obama Administration's recent announcement that Haitians already living in the US (illegally or not) will be granted temporary visas is an important step.  But for domestic politicians in the developed world, increasing foreign aid is less politically complicated than dramatically expanding immigration intakes.  And certainly less controversial.

Nevertheless, even a modest expansion of guest worker programs in the US and other developed nations will have a greater long-term effect than any amount of money Simon Cowell's charity single can raise.

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Legislated robbery must be restrained

New South Wales landowner Peter Spencer recently ended a hunger strike protesting about a state government zoning that prevented farming on his property.

His actions have drawn attention to the abilities of state governments to take people's property without compensating them.

The issue stems from decisions 15 years ago by the Howard government to reduce greenhouse gas emissions.  The federal government saw preventing land clearing for agriculture as a costless way of achieving this.  It recruited the state governments, which control land use, to administer the measure.

Unlike the federal constitution, state constitutions do not provide for fair compensation for land or any other property taken from individuals.

Canberra thought it had discovered a magic pudding.  Politicians were faced with noisy demands to reduce greenhouse gas emissions and an electorate reluctant to pay for this.

An apparently costless way out of the dilemma was to prevent farmers from using their land.

While farmers may have unwillingly donated their land assets, there are few of them and they have little political power.  Moreover, after decades of land-use controls, clearing prevention looked like just another regulatory restraint.

After years of litigation, the NSW Government offered Peter Spencer $2 million in compensation.  That was the value of his land after the regulations had made it unproductive.

That's like the government deciding that nobody may ever again inhabit your $500,000 family home or visit your $500,000 tourist facility, thereby reducing its value to $20,000 and claiming $20,000 is fair compensation!

And there are a dozen different laws allowing state governments to do this.  These range from zoning restraints, laws regarding heritage and species conservation, through to land acquisitions for new roads.

Prime Minister Kevin Rudd's advice to Peter Spencer was to let the law take its course.  But that entails accepting the theft of property that the government has sanctioned through legislation.  That's how the rule of law used to work in communist countries.

Fairness aside, there are very good reasons why governments should be restrained from taking people's property.  Without such restraint, people's incentives to save, build businesses, even acquire family homes, are undermined.

Saving and investing is based on people having confidence that their property rights are secure.  Laws that are not enforced or are arbitrarily used by government cause economic decline.

Secure property rights therefore underpin economic prosperity.  They are crucial for productivity growth, which Mr Rudd this week announced as a new priority for Australia.

But productivity growth requires more than lofty statements.  It requires less -- not more -- government control and regulation throughout the economy.

Government respect for property rights is one essential feature of this.  Property rights would be more secure if all governments were obliged to provide full compensation for measures that devalue property.

For short-term political gain and to avoid expense, governments are often tempted to take unfair and economically harmful measures against those with little political muscle.

There can be no guarantee against arbitrary use of government powers to prevent such actions but constitutional provisions provide a useful restraint.

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The Tote faces the music

The closure of iconic rock venue The Tote provoked a groundswell of opposition to Victorian Premier John Brumby's draconian liquor licensing laws.

The Tote has been slugged with an increase in licensing fees this year of several thousand dollars, as well as increases in the requirements for security guards and reduced operating hours -- two security guards required before, during and after each show, be it a late night rock concert or a lazy afternoon of acoustic folk.  The total cost of the new regulations for The Tote was reported to be around $75,000.

These new costs, coupled with the legal fees incurred during the constant battles between the owners and VCAT, have resulted in a slow and painful strangulation of the small pub in Collingwood.

As the venue housed live music, it was automatically considered "high-risk" under the Brumby government's guidelines, despite having a pristine record of lawfulness.  This is the same category as a King St nightclub, and, paradoxically, any alcohol-serving venue open before 9am.

The new costs, however, do not represent the entire regulatory burden on licensed venues.  Governments force venues to prohibit smoking in bars.  Venues that house live music require Place of Public Entertainment permits.  Building inspections are relentless.  Governments force new venues to stop serving alcohol after 1am.  And in recent years, there was a 12-month freeze on all new liquor licenses.

On Saturday, fans of live music from all over Melbourne descended on The Tote to bid farewell to the venue that has housed international acts and local up-and-comers alike.  The scene was reminiscent of the film The Boat That Rocked, where rock fans sail out to save broadcasters of a pirate radio station, shut down by an all-controlling government.

The closure of The Tote is symptomatic of the ideology of the nanny state.

In a bid to curb alcohol-fuelled violence, the state government has introduced new measures which, rather than targeting violence, target venues that sell alcohol.  The brunt of these measures has fallen hardest on live music venues.

Bruce Milne, publican for The Tote, claimed that government bureaucracy and regulation had the Australian live music scene "dying a death of a thousand cuts".  This is particularly painful in a city like Melbourne, where the abundance of live music is not only popular with tourists, but is an integral part of our culture.

Indeed, this is not the first time that this situation has happened.  Last year, the New South Wales government imposed tight restrictions on liquor licenses.  Many smaller venues were forced out of business due to this heavy-handed approach.  And yet the Victorian government seems to be either oblivious to this, or simply apathetic.

Sadly, it seems that this is part of broader trend towards nanny-state policies in recent years.  The Victorian government has attempted to implement the notorious 2am Lockout policy.  The Victorian opposition has proposed a ban on bongs.  The Federal government has increased taxes on alcopops.  The Federal opposition has proposed increasing taxes on cigarettes.  And then, of course, there is the Federal government's attempt to censor the internet.

These policies all come with the proclaimed intention of protecting people (from violence, supposedly obscene viewing material, harm due to drug misuse, etc.), but they always seem to come with unintended consequences.

Furthermore, they are all grounded in the ideology that says that the government is a better manager of our lives than we are.

The huge regulatory burden seems to hit the smallest players the hardest.  Higher prices that are required to cover these costs mean that young people go to fewer concerts.  Small venues do not have the money to pay these costs and still maintain profitability.  Small bands that use small venues no longer have anywhere to play.  And this is killing our culture.

My first local concert was at an underage afternoon at The Tote.  I saw a small band that has since gone on to release two albums and tour the world.  If the nanny-state ideology is allowed to continue, this may be confined to the dustbin of rock and roll history.

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Obama a victim as Americans struggle to accept a lesser role

If a week is a long time in politics, then a year is an eternity.  Twelve months ago, Barack Obama's presidential inauguration completed a political realignment in the US.  Democrats had huge majorities in both houses of Congress and liberals were dominant in Washington for the first time since Lyndon Johnson's "Great Society" of the 1960s.  Pundits proclaimed the end of conservatism and there was heady talk of a new dawn.

Today, however, the President and his party are in the political doldrums and voters are rebelling in states that Obama won comfortably only a year ago.  The discontent runs so deep that a conservative won the Senate seat in a state with no Republican members of Congress and that had been represented by the Kennedy family for six decades.  The prospects for Obama's legislative agenda -- from health-care reform to an emissions trading scheme -- look increasingly bleak.  The vaunted liberal realignment has vanished within a year.  It was not supposed to be this way.

White House apologists blame the Democratic candidate in Massachusetts, Martha Coakley, whose endless gaffes make Sarah Palin look almost presidential in comparison.

Meanwhile, her Republican opponent, Scott Brown, was the model candidate:  smart, athletic, charismatic, handsome and a family man.  But the candidates, however weak or impressive, do not explain the tidal wave of discontent that has swept across one of America's most liberal states.

Conservatives have a different interpretation:  the Republican Party's resounding victory is a rejection of what the Pulitzer Prize-winning columnist Charles Krauthammer describes as "the most radical [in American terms] ideological agenda since the New Deal" of the 1930s:  namely, liberal Democratic legislation on health, education and climate change.  America, after all, is a right-of-centre nation:  polls show conservatives remain the largest ideological group, outnumbering liberals nearly two to one.

The Massachusetts result, along with Republican wins in governor races in Virginia and New Jersey in November, represent a backlash against big government.

But although Americans may be rejecting Obama's vast expansion of state power, neither are they embracing the Republican agenda.  The party is leaderless and riven by factionalism.  It has been suffering the kind of mental sclerosis that afflicted Democrats in the 1970s.  With most conservatives identifying shock-jock Rush Limbaugh as their leader, it is clear that Republicans lack philosophical self-reflection.

A more intriguing explanation for Massachusetts exists:  that the backlash against Washington has less to do with Obama's ideological overreach and more to do with America's spiritual doldrums.

As he commemorates his first year, Obama is understandably focused on reviving the US economy and rebuilding Haiti and Afghanistan.

But he has the even more difficult task of restoring the American people's faith in their future.  In other words, the US is bogged down in a cultural crisis, and this stems from expectations about America's future that no president can meet.  For generations, Americans have seen their nation as "a city upon a hill" (John Winthrop) and "the last best hope of Earth" (Abraham Lincoln) that would make the world "safe for democracy" (Woodrow Wilson).

The same vision is echoed in the idea of the American Century, which shaped the national consciousness after World War II, when the US enjoyed an almost absolute supremacy in world affairs.  The collapse of Soviet communism and end of the Cold War reinforced the perception of American exceptionalism.

But many things in recent decades -- the quagmires in Vietnam, Iraq and Afghanistan, Watergate and other political scandals, the mounting trade and budget deficits, the subprime mortgage crisis, the decline of US unipolarity and what Irving Kristol said were "clear signs of rot and decay germinating in American society" -- have helped to shatter US confidence.  Suddenly, the dominant vision of Pax Americana faded without anything -- even the war on terror -- emerging to replace it.

The void means that Americans have oscillated between periods of clarity and purpose, and periods of intense doubt and uncertainty.  Clearly, Americans in 2008 embraced Obama's optimistic vision of change and renewal.  But in the year since, he has failed to meet the lofty expectations that the public, the media and he himself set.

In recent years, polls consistently show most Americans think their nation is heading down the wrong path.  Hence the rapid mood swings within the electorate, epitomised in Obama's fall from adulation to anger within a year.

Of course, America has undergone crises before, but it has never endured one quite like this.  It is not just that the US military is stretched to breaking point.  Nor is it just that the US is mired in double-digit unemployment and skyrocketing levels of debt.  It is more to do with whether Americans will gracefully accept a lesser role in a multipolar world.

Notwithstanding the hopes of the Obama campaign in 2008, the President has been unable to quiet Americans' doubts about their future.  That may not be his fault, but it helps explain the meaning of Massachusetts.

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Massachusetts' message

The US Democrats Senate election failure in their traditionally Massachusetts stronghold was a consequence of President Obama not listening to why Americans really sent him to the White House.

Only weeks ago most pundits and pollsters wrote off the election to fill the Senate seat vacancy caused by the passing of its incumbent for the previous half century, Ted Kennedy, as a certainty for the Democrat's Martha Coakley.

After all, Massachusetts is the US Democrats heartland and was a State, until Tuesday evening, which only sent Democrats to Washington at the election that propelled Obama into the White House.

But the Democrat's collapse in support from independent voters shows they haven't learned the lessons of the last national election.

During the final years of Bush's Presidency his approval ratings slipped from bad to worse for numerous reasons, but they didn't truly hit rock bottom until his Administration mismanaged the fallout from the global economic crisis.

By bailing out failed companies and irresponsible banks Bush's popularity, and the chances of McCain to succeed him, crumbled.

Riding on the wave of "change we can believe in", a fresh slate Obama argued against the Bush Administration's economic policies.

But since assuming office Obama has expanded the size of government by mobilising public money to bailout businesses that should have been allowed to fail.

Bailouts have remained consistently unpopular amongst Americans who are culturally supportive of the free enterprise and the correlation between risk and reward and, sometime, failure and responsibility.

But by bailing out car maker General Motors the government has been using taxpayer's dollars to socialise losses and allowed company Directors to flaunt their responsibilities.

And Obama's now infamous Health Care Bill that would seek to expand government funding and delivery of healthcare was also a key issue that rallied voters to Brown.

Following the election result Democrats should be listening to the underlying reasons tens of thousands of independent voters switched Parties in droves.

But it's clear some Democrats haven't heard the Massachusetts' people's message.

Following the election result some Washington Democrats have argued the Health Care Bill should be passed unamended through the House of Representatives following its equivalent passage through the Senate in December last year.

By not amending the Bill it won't then need to return to the Senate for support after Brown has been sworn in and the Democrats lose their filibuster proof majority in the chamber.

And the opposition to the Health Care Bill was about more than its text.

Because Massachusetts already has a State-based universal healthcare system independent voter disquiet was rooted in the Democrats efforts to ram the legislation that would expand the size of government through the Congress with limited scrutiny.

And it's the profligate, roughshod expansion of big government that is now mobilising Americans and giving Obama a taste of his own medicine.

To get elected in late 2008 Obama built a nation-wide grassroots campaign of rank-and-file Democrats to graft independent voters to his election cause.

But following his election his big-government, big-spending, high-tax solutions have united conservatives, centre-right liberals and libertarians to engage in similar grass root campaigns under the banner of the now famous Tea Party groups protesting against expanded government.

In the Massachusetts Senate race Tea Party groups were held responsible by senior Democrats for mobilising independent voters against Coakley and for Brown.

Republicans are justifiably buoyed by Brown's victory, but they should be sober in their victory.

At Brown's victory rally supporters chanted "John Kerry's next" demonstrating cockiness amongst Republicans about their prospects to knock off the former Democratic Presidential and serving Massachusetts Senator.

Considering the strong democratic leanings of Massachusetts it's more likely Brown will be replaced after the two years of the term he has been elected to serve concludes.

And Republicans can only take limited comfort in Brown's victory.

Throughout the campaign Brown promoted himself as an "independent Republican" who advocated for traditional Republican values like lower taxes and less government spending -- policies Republicans haven't been good in enacting in recent years.

As a consequence, both Parties were sent the same message in Massachusetts that Americans still want less, not more, government.

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Lack of Global Agreement Offers a Chance to Cut Our Losses

Most politicians across the world recognise that measures to reduce CO₂ emissions impose costs on their economies, whether they employ a carbon tax, cap-and-trade or regulatory approach.  Failure at Copenhagen showed politicians recognise such costs exceed the benefits.

Having basked in international approval by ratifying the Kyoto treaty at the Bali meeting, Kevin Rudd faced criticism in Copenhagen.  John Bolton, the Bush administration's UN representative, accused him of pursuing an emissions tax in order to micro-manage the economy.  Australia was condemned for its inclusion of emission reductions resulting from reduced land clearance and for excluding emissions from bushfires.  China and India accused Rudd of being a show pony;  and the main developing world negotiator, Lumumba Di-Aping, depicted Australia's approach as "climate change scepticism in action".

In fact, Australia is already implementing expensive carbon mitigation measures:  subsidies to high-cost renewables and taxpayer-funded energy conservation subsidies.  These programs cost $2.8 billion a year on top of regulatory requirements for energy efficiency and green feed-in tariffs, which would add at least a further $1.5 billion.  These measures are equivalent to a tax of $200 a year per person.

The Carbon Pollution Reduction Scheme costs would be additional.  Treasury put the costs per head of a CPRS with a 5 per cent reduction in emissions at $700 by 2020 and $4300 by 2050.  A 25 per cent reduction (and remember, the reduction needed is 80 per cent) was put at $1200 and $5700 for the two years respectively.  Even these numbers assume a remarkable pace of new technological development and adoption for carbon capture and storage and renewables.

The NSW electricity price regulator said the CPRS would increase the average retail energy bill by 15 per cent, with the energy component increasing by 60 per cent.  Even as early as 2012-13 about $300 a year would be added to the average residential customer's annual bill and more than $2000 for a typical business.

Some prominent business leaders say passing the CPRS is essential to give business certainty.  Yet the bill before parliament cannot give such certainty because it simply gives authority to the government to determine emission levels.  Even these levels are subject to disallowance by the Senate.

The price of CO₂ emissions is the all-important trigger for new capital spending on low-CO₂ emissions projects and for scrapping high-CO₂ investments.  And under the CPRS, it is parliament that would determine this on a year-by-year basis.  The only certainty is where the government guarantees specific projects or provides "free" credits, a process that would turn into an ugly winner-picking exercise.

Established businesses with high emissions have opted to support the CPRS hoping to benefit from free allocations of carbon credits.  They see the proposal as offering valuable competitive opportunities for their own activities or as minimising losses they might incur.  The losers include small businesses and consumers that don't get a share of the tax spoils, and businesses that are not yet established and never will be if a punitive tax is threatened by Australia.  The economy as a whole is the ultimate loser because higher energy prices are a result of the CPRS and any regulatory alternative would have a similar effect.

The ACTU's Sharan Burrow claims there is $6 trillion in global funds for investment in clean technologies, renewable energy, sustainable design and green buildings.  Few governments are convinced such funding is real:  if they were, leaders at Copenhagen would have been outbidding each other with new carbon reduction proposals.

The outcome of Copenhagen gives us the opportunity to quietly adopt a wait-and-see policy.  The government's rhetoric has already shifted from pursuit of world leadership in emission reduction programs to doing "no more, but no less" than the rest of the world on climate change.  The CPRS tax-and-spend program or the alternative of further regulatory measures would inevitably induce cost increases and undermine the economy.  Among world nations, Australia is among the most dependent on fossil fuels for its wealth creation.  With no global emissions reduction program on the horizon, we have an opportunity to suspend further economically debilitating measures.

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Free Trade Brings Heaps of Benefits

It's five years since our free trade agreement with the US entered into force and the results are in:  Australia has won.

In the lead-up to January 1, 2005, public debate correctly highlighted the fact that the agreement wasn't perfect.

Australia did not secure an end to US restrictions on imported Australian sugar and immediate liberalisation of trade restrictions on other agricultural commodities.

And Australia secured equivalent trade-offs by maintaining television local-content restrictions that were outdated and heavy-handed regulations on the pharmaceutical industry.

Since the FTA commenced, critics have continued attacking the agreement because our trade deficit with the US has widened.

Yet an average $1.2 billion increase in our annual merchandise trade deficit between the 2005-06 and 2008-09 financial years is insignificant in comparison with the US investment windfall the FTA delivered.

A key provision of the agreement was the relaxation of the threshold requirements for US investors to seek Foreign Investment Review Board approval before investing in Australia.

The results are clear.

According to the latest Australian Bureau of Statistics data, total US investment in 2005 was just shy of $334bn and has increased by an average of $20bn a year, reaching $418bn by the end of 2008.

And attacking a marginal trade deficit increase ignores that free trade is not a zero-sum game and that imports deliver benefits as well.

To be internationally competitive, Australian businesses need technologies that help improve productivity, competitive inputs into domestically produced manufactures and service imports to support industry growth.

Necessary imports added with the significant size of US investment have helped Australian industries grow, create jobs and ride out the global economic crisis.

Increased US investment has also helped foster industries of the future.

According to a Department of Foreign Affairs and Trade analysis, US investment is "increasingly more diversified, particularly with increased activity in the services trade".

US investment is underwriting a boom for our services exports, with the ratio of Australia's goods to services exports to the US roughly two to one.

By comparison, our ratio of goods to services exports to our other top five trading partners is nearly 23 to one for Japan, eight for China, 10 for South Korea and five for India.

Our service exporters are also supported through the FTA's commitment to encourage professional associations and governments to recognise qualifications for people from both countries.  The responsible bi-national working party has already secured greater qualification recognition and, consequently, work opportunities in the US for accountants, engineers and legal professionals.

Not surprisingly, these particular industries now make up some of Australia's largest exports to the US.

And our service industry interests were also advanced through the establishment of the two-year, indefinitely renewable E-3 working visas in the US.

In 2008 the visa was used by 15,000 people and now gives Australians one of the most preferential work visas to the US.

Under the visa, Australia may lose skilled workers to the US in the short term, but the vast majority will return home with knowledge and experience to help Australian industries grow.

It is these dynamic, unpredictable outcomes that demonstrate the benefits of free trade as businesses find new markets, increase imports, increase competition, and cut the price of business inputs and consumer goods that improve standards of living.

But while Australia has won from its US FTA, we shouldn't sit on our free trade laurels.

Although the Rudd government is making all the right public noises on free trade agreements, concurrent regulations and industry support programs are unwinding the dividends of trade liberalisation.

Federal Industry Minister Kim Carr regularly introduces protectionist measures, from increased automotive industry subsidies to offset tariff reductions, to regulations that haze contractors tendering for government projects into using local suppliers.

The NSW and Victorian state Labor governments have introduced protectionist local-content thresholds for government contracts that reduce value-for-tax dollar for state budgets already in deficit.

The Rudd government also bowed to vested interests such as the campaign to keep import restrictions on copyrighted books that protect the profits of multinational publishing houses and marginal electorate-based printing companies that are then passed on to consumers.

Instead of introducing protectionism the Rudd government should be negotiating more FTAs such as the joint Australia-New Zealand FTA with ASEAN countries, which came into force on the fifth anniversary of the US agreement's.

Why?

Because in five years the economic benefits of the US and ASEAN FTAs will be clear, but they won't be for newly introduced protectionism.

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Why palm oil does not deserve its bad press

Recent campaigns against palm oil show non-governmental organisations are more interested in pandering to rich country donors than promoting sustainable economic and environmental development for Southeast Asia's poor.

Following attacks from palm oil industry interests in November last year, the chief executive of NatureAlert, Sean Whyte, claimed "Non-governmental organisations don't want to see it (the palm oil industry) closed down and neither are they seeking a boycott of palm oil", but to see it prosper without doing "damage to the environment".

In making such claims, however, Whyte clearly cannot see the oil palm from the plantation.

In Australia and New Zealand, NGOs have convinced celebrities, television stations and taxpayer-funded zoos to campaign for government regulation requiring manufactured food products to label palm oil ingredients separately from vegetable oils.

Their objective of mandatory labelling is to encourage consumers to choose products that don't contain palm oil and effectively introduce a consumer boycott.

The NGO campaign has had some success, with Australian Senator Nick Xenophon recently announcing he would introduce legislation directing the bi-national regulator, Food Standards Australia New Zealand, to require compulsory separate palm oil labelling.

With mandatory palm oil labelling in force, supported by consumer boycotts, food manufacturers will be faced with the business reality of either losing sales or switching to other oils in manufacturing to keep customers.

It's a decision confectionery manufacturing giant Cadbury made last year after NGOs identified they were using palm oil in their chocolate products and encouraged a consumer boycott, leading Cadbury to dump palm oil as an ingredient.

In Europe, NGOs have gone one step further and successfully lobbied to introduce Europe-wide regulations blocking palm oil biofuel imports unless they meet strict emission standards.

In developed countries, NGO campaigns often prey on the ignorance of well-intentioned donors who aren't confronted with the consequences of NGO policies on out-of-sight and, therefore, out-of-mind rural workers.

NGOs then add images of "cute" orang utans whose habitats are claimed to be lost to palm oil-caused deforestation, to encourage donors to open their wallets.

But garnering donor sympathy to fight the palm oil industry comes at the expense of the exports and livelihoods of the more than 40 per cent of Malaysia and Indonesia's smallholder oil palm growers who rely on the crop for their incomes.

In total, at least two million Malaysian and Indonesian workers depend on the palm oil industry for their livelihoods, including from the large plantation communities that make up a majority of the planted oil oil palm, who don't just provide salaries for workers but also heavily, or wholly, subsidised healthcare, housing and education services.

Attacks on the industry also ignore the clear benefits of palm oil.  At a side-event at the United Nations Copenhagen climate change conference, critics attacked palm oil because, like many other comestibles, it may contribute to the contraction of diabetes.

But palm oil is also a rich source of vitamin A and, according to the United Nations Children's Fund, each year a million infant deaths are caused by vitamin A deficiencies.

But there's no choice between accepting one million preventable infant deaths and allowing the consumption of palm oil that may lead to the contraction of a manageable chronic disease later in life.

And the crop is also substantially more sustainable in comparison with other oils because oil palm yields at least five times the same tonnage per hectare as equivalent seeds.  As a consequence, oil palm needs less land and less resources to produce more.

The irony of the attacks on the oil is that if activists were successful in blackballing its use in food manufacturing, producers would have to switch to alternative lower-yielding crops to maintain their livelihoods.  The consequence would be that they would require more land and more resources to produce less.

Palm oil isn't perfect and it is responsible for some deforestation caused by rogue growers.  But the benefits of palm oil far outweigh the costs.

NGOs may think that eliminating consumer demand may remove the environmental consequences caused by the industry, but attacking the root of environmental degradation won't be solved by attacking palm oil.

Around the world, the key driver of environmental degradation is rarely a single industry, but poverty.

When urban and rural communities are poor, their best escape option is through the exploitation of primary natural resources that promote economic growth and drive the development of manufacturing and service industries.

Without the development of these industries, communities will always be trapped in subsistence living, where the environment will always come second to families finding ways to stay alive and secure food and shelter, especially in rural areas.

Protecting the environment only becomes a priority when societies prosper and can afford environmental protection regulation and the resources to sustainably manage and conserve their natural assets.

Anti-palm oil NGOs like NatureAlert, Greenpeace, Wetlands International and Friends of the Earth may think demonising palm oil will help Malaysia and Indonesia improve their environmental health.

But any short-term environmental improvements will be traded off against the livelihoods of the rural poor, who would be better able to protect their environment when they have economically developed and can afford to do so.

More police on the beat the answer to drunks' violence

What have the NSW Police been drinking?  An email from Chief Inspector Haberley to Sydney bottle shops asks that they take full-strength products off the shelves on Australia Day.

Haberley argues:  "Australia Day (has) become a day for binge drinking" that can lead to violence.

But rather than intimidating bottle shops, the police should focus on making their presence more obvious on the day.

It's absurd to think that a booze sale ban before 2pm will significantly change people's drinking behaviour.

Even the most hopeless drunk has the next 11 days to hoard the cheap whiskey they feel they need to get through our national holiday.

And the ban presumes that any booze-fuelled violence starts outside of licensed venues which will still be able to serve drinks throughout the day.

Not that stupid bans on Australia Day are without precedent.  In 2007, the organisers of music extravaganza The Big Day Out attempted to introduce an Australia Day ban on attendees wearing the Australian flag as capes.

Their theory:  The flag generates a pseudo-mob identity that can lead to loutish behaviour.  Like the flag ban, the police's proposal has prompted many to shout the regularly used and undefined term for when Australian culture is under attack -- "unAustralian".

There aren't many traditions Australians can genuinely call our own.  Surely having a couple of cold stubbies on our national holiday is one of them.  And getting drunk and violent isn't.

On Australia Day most of us have a drink or two but we don't break out into an unruly mob because we know our limits and stop, or we don't know our limits and fall asleep in the sun and get a tan that we feel for the following week.

Rather than attacking a great Australian tradition, NSW Police should be seeking to foster a culture of personal responsibility for our actions.

But it's clear NSW Police don't think this way.  They blame bottle shops for allowing violent idiots to become drunken violent idiots.

Until individuals take responsibility for their own behaviour, anyone prone to violence isn't going to be well behaved regardless of whether they buy beers before 2pm on January 26.

Costly, ineffectual and protectionist carbon tariffs: why carbon tariffs shouldn't be adopted to offset the cost of carbon

1.0 ABBREVIATIONS

CAT = Cap and Trade
EPA = Environmental Protection Agency
ETS = Emissions Trading Scheme
EU = European Union
EU ETS = European Union Emissions Trading Scheme
GATT = General Agreement on Tariffs and Trade
MFN = Most Favoured Nation
PPMs = Process and Production Methods
ROOs = Rules of Origin
UN = United Nations
US = United States
USD$ = United States Dollar
WMO = World Meteorological Organisation
WTO = World Trade Organisation

2.0 EXECUTIVE SUMMARY

• Few countries will have domestic carbon price signals in the short to medium term.  As a consequence, governments which have adopted carbon price signals are considering the introduction of carbon tariffs to offset the extra costs imposed on domestic industries.
• Based on author's calculations (see Annex), to appropriately reflect the added cost of a carbon price signal in the United States, it is likely a ten and a half per cent average carbon tariff would be required for carbon-intensive products adding billions of dollars onto imports for consumers.
• This cost will harm the competitiveness of the domestic industries that carbon tariffs are designed to protect, by increasing the price of imported components into manufactured products.
• Calculating the carbon-input component of an individual product is extremely complex.  Attempting to do so would require a vast regulatory structure.
  • The complexity is substantially worsened when a product includes components developed in a global supply chain, where carbon emissions vary from country to country, as will the value of potential carbon price signals.
• The introduction of carbon tariffs is likely to violate the obligations on World Trade Organisation members under the General Agreement on Tariffs and Trade.
• Carbon tariffs are costly, ineffective and protectionist and their costs that far exceed their benefits.

3.0 INTRODUCTION

Many developed country governments are in the process of negotiating for the introduction of carbon price signals to incentivise business and consumers to reduce their carbon footprint.  Individual European countries and the European Union already have Emissions Trading Schemes, Australia's Parliament is still considering the introduction of its scheme, and the United States Senate is currently considering a proposal for the introduction of a CAT scheme to be voted on in early 2010.

But the inclusion of a carbon price signal raises serious concerns about their impact on domestic industries competing against imports that don't include the cost of carbon.  As a consequence some activists and politicians are arguing for the introduction of carbon tariffs on imported goods that come from countries that do not have a domestic carbon price signal.

The French President, Nicholas Sarkozy, has argued for the introduction of carbon tariffs, and a requirement for their introduction is included in the Waxman-Markey Bill before the United States Senate.

This research paper will explore the issues surrounding carbon tariffs.  In particular this paper will seek to define what a carbon tariff is, where proposals for them came from, what is currently being proposed and where they are likely to be introduced, their legality under World Trade Organisation rules, the complexities of their introduction and what their cost will be.

4.0 WHAT IS A CARBON TARIFF?

A carbon tariff is a unilaterally-imposed trade-restrictive measure levied on imports of goods and services from countries that do not have a domestic price signal.  Carbon tariffs can take the form of a direct tax reflecting the perceived carbon footprint of a good or service, or the obligation that carbon emission credits must be purchased from a CAT/ETS to reflect the carbon footprint of the imported good.

The implementation of a carbon tariff differs depending on how the domestic emissions regulation is imposed, that is, as a carbon tax, or as part of a CAT/ETS.  While there is no certainty about how a carbon tariff would reflect the domestic regime, it is speculated that under a domestic carbon tax it would be most straightforward to impose an equivalent border tax reflecting the nature of the domestic scheme;  and in a CAT/ETS environment for emissions credits to be purchased reflecting the carbon footprint of the goods or services. ⁽¹⁾

There are other options for implementing a carbon tariff such as countervailing duties ⁽²⁾ or by requiring importers to meet a carbon intensity standard equivalent to that applied to domestic producers ⁽³⁾ but these options have been given less consideration than those above.

Carbon tariffs aim to neutralise the cost of a domestic carbon price signal, to prevent the leakage of business activity into economies without a carbon price signal commonly referred to as carbon leakage, and to encourage other countries to adopt similar emission reduction policies. ⁽⁴⁾

Carbon leakage a concern because the consequences could include consumers and business buying goods from countries without carbon price signals or that industries will move countries to those without carbon price signals.  In both situations global carbon dioxide emissions will not be reduced and the purpose of introducing a carbon price signal will be undermined. ⁽⁵⁾  For example, in the EU, with a carbon price signal there are significant economic gains to be made from moving carbon-intensive industries like cement, steel, aluminium and chemical sectors to countries without a carbon price signal.

Carbon tariffs are considered necessary in the absence of a comprehensive, binding international agreement to reduce carbon emissions.  Because of "the truly global nature of climate change and the limited ability of any one country to address it unilaterally" ⁽⁶⁾ the absence of global obligations could prompt carbon leakage to countries without a carbon price signal.  It is speculated that domestic industries are more likely to accept the obligations of a carbon price signal if they are afforded the protection of a carbon tariff to offset any impact it may have on their competitiveness.

4.1 THE HISTORY OF CARBON TARIFFS

The first concrete proposals for the introduction of a carbon tariff originated in the European Union (EU), and specifically France, as a response to concerns about the impact the introduction of a carbon price signal under an ETS would have on the competitiveness of local producers against imports from countries that do not have a carbon price signal, including the United States. ⁽⁷⁾

By 2002 a United States Business Council for International Business Report flagged the emerging push by international NGOs, including Greenpeace International and Friends of the Earth Europe, for trade measures to be introduced against the imports from countries that were not compliant with their obligations under a ratified Kyoto Protocol. ⁽⁸⁾  In 2006 the idea resurfaced when the French Prime Minister, Dominique de Villepin, suggested that carbon taxes be introduced against countries refusing to join the successor agreement to the Kyoto Protocol. ⁽⁹⁾

Current proposals for carbon tariffs are wide and varied, but the biggest proponents are in the EU and US.  In response to the introduction to the EU ETS, ⁽¹⁰⁾ European governments proposed the introduction of a carbon tariff to offset their self-imposed carbon price signal.

But to date there is no consensus on whether a carbon tariff should be imposed.  Current French President, Nicolas Sarkozy, has publicly supported the introduction of carbon tariffs that would require importers to buy emissions permits from the EU ETS that reflect the carbon footprint of manufactured goods. ⁽¹¹⁾

However there has been longstanding opposition in European governments with then EU Trade Commissioner, Peter Mandelson, dismissing the idea in 2006 describing proposals as "highly problematic under current WTO rules and almost impossible to implement in practice" ⁽¹²⁾ as did Germany's former State Secretary for the Environment, Matthias Machnig, who argued in mid-2009 that carbon tariffs would be imposing "eco imperialism" on developing nations, ⁽¹³⁾ supported by the Swedish government that stated it is "absolutely against each try to make use of green protectionism." ⁽¹⁴⁾

The German government's opposition has continued following their recent election stating they are "oppose(d to) the introduction of climate tariffs and CO2 taxation… at the EU level." ⁽¹⁵⁾  However the EU has recently taken a step toward climate trade measures by directing member States to limit biofuel imports sourced from products that don't dramatically reduce emissions against fossil fuel alternatives. ⁽¹⁶⁾

By comparison, the inclusion of carbon tariffs is well-advanced in the US.  US Senate Finance Committee Chairman Max Baucas has declared that the US "must devise a border measure, consistent with (its) international obligations, to prevent the carbon leakage that would occur if US manufacturing shifts to countries without effective climate change programs." ⁽¹⁷⁾  To this end the American Clean Energy and Security Act, commonly referred to as the Waxman-Markey Bill, is currently being considered by the US Senate following its recent passage through the House of Representatives.  The purpose of the Bill is principally to establish a US CAT/ETS scheme, but includes a requirement for carbon tariffs on goods imported from jurisdictions with less stringent emissions regulations. ⁽¹⁸⁾  Under the Bill the implementation of a tariff would not come into effect until 2018, should the President be unsuccessful in negotiating an international agreement to reduce global carbon emissions. ⁽¹⁹⁾

Equivalent legislation currently being considered by the Senate, The Clean Energy Jobs and American Power Act, commonly known as the Kerry-Boxer Bill, includes under Section 765 the flexibility for the inclusion of a carbon tariff "designed to work in conjunction with provisions that allocate allowances to energy-intensive and trade-exposed industries." ⁽²⁰⁾  And it remains the expectation of the current Obama Administration that any Bill that finally passes the House of Representatives and the Senate will include provisions for "fair competition" between US and foreign producers, which is considered a thinly veiled reference to a border measure. ⁽²¹⁾

As an interesting comparison, the design of the Australian ETS has explicitly rejected the inclusion of a carbon tariff.  Instead the Australian scheme includes the allocation of free permits for emissions-intensive trade-exposed industries recognising that "challenges exist in implementing border adjustments for imports in a simple, transparent and verifiable manner." ⁽²²⁾

5.0 CARBON TARIFFS, FREE TRADE AND
THE WORLD TRADE ORGANISATION

Despite enthusiasm for carbon tariffs, their legitimacy under international trade rules is questionable.  The principle of free trade is that countries should produce goods and services that take advantage of their comparative advantage.  Imposing a carbon price signal to devalue carbon-intensive industries, goods and services is an anathema to that principle because it devalues each country's comparative advantage.

Imposing a carbon tariff further exacerbates the tension between a carbon price signal and each country's capacity to exploit their comparative advantage by forcing the devaluation of their carbon-intensive industries, goods and services.

But carbon tariffs are not just philosophically inconsistent with free trade, they are also likely to be legally inconsistent. ⁽²³⁾  In order to introduce carbon tariffs without the consequences of retaliatory measures from other countries governments would need to design them to be consistent with their existing obligations under the WTO.

Assessing their legality under the WTO is difficult because they have not been introduced in a WTO member country and hence have not been considered by a WTO dispute settlement panel. ⁽²⁴⁾

Consistent with the principles of free trade, the WTO Director-General, Pascal Lamy, has noted that "the WTO allows members certain flexibilities to adopt border adjustment policies to equalize costs related to carbon controls, as long as they do not distort or disrupt trade." ⁽²⁵⁾  But as policy instruments carbon tariffs are deliberately designed to distort trade.  And while Director General Lamy has argued that climate change policies are the first priority over trade obligations, the WTO Secretariat has yet to take a position on the legality of carbon tariffs instead preferring the issue be addressed through an international climate change agreement.

Although no accurate determination of WTO consistency can be made in advance as WTO panel decisions must necessarily be "highly fact-specific," ⁽²⁶⁾ it is considered likely that the measures proposed by the US and EU would violate the GATT, particularly Articles I and III.

Article I of the GATT includes the most favoured nation clause requiring countries to offer to WTO members the same treatment of imported goods into their country as the nation with the most favourable treatment.  Article III covers national treatment provisions requiring imports to be treated equivalent to domestically produced goods beyond the border.

5.1 ARTICLE I | MOST FAVOURED NATION

Article I requires member states to provide imports from all WTO members the same treatment "immediately and unconditionally" to "like products" originating in the country afforded the most favourable treatment. ⁽²⁷⁾  In principle a carbon tariff would violate this principle by imposing a trade barrier on some WTO members, but not others.

5.1.1 Like products

A key to assessing an Article I violation is the question of whether a carbon-intensive and a non-carbon intensive product are 'like products'.  WTO case law on this question is mixed.  There are cases where a like product test has been interpreted from "the relevant facts of a case," where likeness has been equated "with direct competitiveness," ⁽²⁸⁾ or based on the "the nature and extent of a competitive relationship between and among products" ⁽²⁹⁾ and because they compete directly in the marketplace. ⁽³⁰⁾  The general assessment of a like product test is based on whether the two products have the same physical characteristics, end use, carry the same consumer preferences and are included in the same tariff schedule.

But in the case of a carbon intensive good an assessment of a like product is difficult because comparable physical characteristics are difficult to assess and it remains vague whether the same consumer preferences are maintained.  The role of PPMs in a like product test also remains unclear under the GATT. ⁽³¹⁾

It is likely that imported products will be considered as like products to those domestically produced even though the carbon emissions associated with their production vary, ⁽³²⁾ and as a consequence an importer could challenge "a border adjustment that required it to purchase more allowances to reflect the higher carbon content by claiming its like product was being treated less favourably," or through the application of a tax adjustment. ⁽³³⁾

5.1.2 Process and production methods

Another key to assessing an Article I violation is whether products can have a carbon tariff imposed at a rate that reflects their PPMs, rather than in accordance with physical characteristics.  As Pauwelyn argues, until December 2006, the WTO stated that "under existing GATT rules and jurisprudence, 'product' taxes and charges can be adjusted at the border, but 'process' taxes and charges by and large cannot." ⁽³⁴⁾  By example, Pauwelyn demonstrates that "a tax on the energy consumed in producing a ton of steel cannot be applied to imported steel." ⁽³⁵⁾

Therefore any carbon tariff levied based on the carbon footprint of a production process would violate this principle.  However Dispute Settlement Panels have ruled in favour of assessing PPMs ⁽³⁶⁾ and imposing border tax adjustments based on process so long as they are non-discriminatory, ⁽³⁷⁾ however panels have not made it clear whether they could be levied on inputs unincorporated into the final product, such as carbon inputs during the production process. ⁽³⁸⁾  And because WTO dispute settlements don't recognise jurisprudence the impact of these rulings remains unclear.

Arguments have been proposed that a carbon tariff would not violate MFN because the adjustment was not made according to origin but according to production processes, ⁽³⁹⁾ but while a novel argument, it is unlikely to be accepted by a WTO dispute settlement panel because it would be "applied only to countries that do not have comparably effective policies." ⁽⁴⁰⁾  A measure may also be inconsistent with Article I if some countries are exempt, such as the least developed countries are from the Kyoto Protocol. ⁽⁴¹⁾

The degree to which climate change policy from the originating country is taken into account by the country imposing the tariff will be an important point.  Even if PPMs are a valid basis by which to calculate a tariff, the measure may nonetheless be discriminatory if applied at a higher rate to countries without climate change abatement policies.

5.2 ARTICLE III | NATIONAL TREATMENT

Article III requires "national treatment" for imported products to the same degree afforded to a locally produced products.  Nations must accord to imported products "treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements" ⁽⁴²⁾ and "internal taxes and other internal charges and laws, regulations and requirements … should not be applied to imported or domestic products so as to afford protection to domestic production." ⁽⁴³⁾

In the case of carbon tariffs it is difficult to assess whether the obligations to buy permits or the imposition of a tax would be an Article III violation.  Previous Appellate bodies found that national treatment obligations can be violated if products are discriminated against based on their input characteristics. ⁽⁴⁴⁾

Whether Article III is violated will principally depend on the manner in which any punitive cost is added to imports.  For example, the cost of an average carbon footprint for all countries would be considered discriminatory. ⁽⁴⁵⁾  To avoid violating the principles of national treatment a carbon tariff would have to apply exactly the same punitive cost of its domestic carbon price signal to the imported product. ⁽⁴⁶⁾  The capacity to do so is virtually impossible, however case law may be available shortly should the United States challenge EU limitations on biofuel imports in the WTO. ⁽⁴⁷⁾

5.3 ENVIRONMENTAL EXEMPTIONS

If a carbon tariff is found to be discriminatory under Article I or III governments could argue for exemptions under Article XX which includes environmental exemptions.

5.3.1 Article XX(g)

The most likely exemption to be invoked is Article XX(g) which includes an exemption for those measures "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption." ⁽⁴⁸⁾  However whether the threat of anthropogenic climate change is sufficient to warrant invoking an environmental exemption remains a considerable source of contention in the literature.

A requirement is that the measure relates to conservation of the climate or atmosphere.  In a range of cases ⁽⁴⁹⁾ it has been determined that "relating to" should be interpreted to mean "primarily aimed at" and/or having a "substantial relationship" with conservation, rather than requiring the measure to be "necessary or essential" to the goal.

Bordoff advises that as estimates suggest tariff provisions will do little to reduce leakage, there is an insufficient relationship to warrant an exemption ⁽⁵⁰⁾ and that carbon tariffs are not likely to be considered an "effective tool." ⁽⁵¹⁾  Further WTO case law demonstrates that carbon tariff legislation must not be "disproportionately wide in its scope and reach in relation to the policy objective of protection and conservation" of the atmosphere and climate. ⁽⁵²⁾  However, Pauwelyn suggests that unless the climate change legislation displays blatant protectionism it may be capable of invoking an exemption. ⁽⁵³⁾  There also remains a legitimate question surrounding the effectiveness of a carbon tariff implemented by a single country and its limited capacity to impact a global problem.  Bordoff suggests that just because carbon tariffs would have a "limited impact on total emissions should not necessarily count against them," ⁽⁵⁴⁾ but this remains untested.

Some question whether the abatement of climate change can even be considered conservation of exhaustible natural resources, ⁽⁵⁵⁾ although as Pauwelyn argues "it would be surprising if the WTO would not accept that the planet's atmosphere (that is, the layer of gases around the earth that regulates the planet's climate) is an "exhaustible natural resource." ⁽⁵⁶⁾  Especially because the WTO relies on advice from other UN specialised agencies including the WMO which is likely to give advice to this affect.

Another requirement is that the restriction on imports be made "in conjunction with" domestic restrictions which has been described as a requirement only of "even-handedness" rather than identical treatment. ⁽⁵⁷⁾

5.3.2 Article XX(b)

It is also possible that an exemption may be made under Article XX(b) which allows for measures that are "necessary to protect human, animal or plant life or health". ⁽⁵⁸⁾  However Article XX(b) requires necessity, unlike Article XX(g) which only requires a relationship, to the environmental goal and is less likely to be invoked in defence of a carbon tariff because it would be significantly harder to substantiate.

5.3.3 Article XX Chapeau

Even if a carbon tariff is granted an exemption under Article XX(g), it would still need to satisfy the tests prescribed in the Chapeau that it is "not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade." ⁽⁵⁹⁾

The chapeau requirements are a considerable hurdle for any measure to overcome and within all Appellate Body jurisprudence, those measures that failed to qualify for the Article XX exceptions did so because of their failure to satisfy this requirement. ⁽⁶⁰⁾

WTO cases have also identified that it is desirable that countries engage with exporters in "serious, across-the-board negotiations with the objective of concluding bilateral or multilateral agreements for the protection and conservation" of the resource of concern for Article XX(g) exemptions. ⁽⁶¹⁾  This requirement may be satisfied by the system put in place by the Waxman-Markey bill for the introduction of tariffs only if an international agreement is not reached by 2018, but the Senate version of the bill, and any similar legislation in the EU or elsewhere would have to ensure it similarly took this requirement into account.

And it is certainly possible a WTO panel would consider a carbon tariff to constitute a "disguised restriction on trade" given the "larger impact on protecting certain US firms than on reducing overall GHG emissions." ⁽⁶²⁾  Further, with the objective of carbon tariffs clearly being to influence the environmental policies of other countries it is unlikely that an exemption would be granted under the Chapeau. ⁽⁶³⁾

5.4 ACHIEVING WTO COMPLIANCE

The WTO compliance of any carbon tariff remains unknown.  The literature has diverse perspectives on their legality drawing on different WTO decisions from Dispute Settlement Panels and Appellate Bodies.

But because jurisprudence doesn't carry weight in the WTO it is difficult to draw conclusions for a border measure that crosses over so many different policy priorities, potential breaches of WTO agreements and may be capable of invoking environmental exemptions depending on how narrow, or wide, they are interpreted.

The only way that the WTO compliance of a carbon tariff can reasonably be assessed is through a dispute following their establishment.

However, if a country was intending to introduce a carbon tariff it would at least need to engage in good faith negotiations with affected countries to achieve a consensual multilateral agreement as the experience through the WTO shows that Dispute Settlement Panels are reluctant to accept unilateral measures unless those genuine attempts have been made. ⁽⁶⁴⁾

Further, to be consistent with the GATT a carbon tariff would be best designed as a straight border tax, rather than a requirement to buy into permits, ⁽⁶⁵⁾ which would be considerably more complex because of their fluctuating prices. ⁽⁶⁶⁾  By comparison a carbon tariff as a border tax could be imposed in a much more straightforward manner and could be added at each stage "as the product moves through the various stages the taxes levied in previous stages are rebated, so only the carbon added in a particular stage is taxed at that stage.  Hence, when the product reaches the final stage, the tax is on the cumulative value of carbon emissions i.e. on the sum of the amounts of carbon added at each stage." ⁽⁶⁷⁾

But even in the form of a border tax adjustment a carbon tariff would still face problems.  While indirect taxes such as a value added tax may be replicated at the border under WTO law, this does not automatically permit such an adjustment for carbon emissions during production elsewhere.  Article II:2(a) of the GATT provides that a border tax adjustment is permissible only when it constitutes "a charge equivalent to an internal tax … in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part." And this article leaves open the discussion about the capacity to impose a carbon tariff on the PPMs of a product.

Ultimately the main problem is that efforts to properly recognise importer's different production methods and avoid arbitrary discrimination would likely become an "administrative nightmare." ⁽⁶⁸⁾

Therefore, short of the establishment and testing of a carbon tariff in a dispute, the only way that certainty can be provided for countries seeking to impose a carbon tariff is through the development of a WTO agreement addressing the consequences of border measures to reflect domestic carbon price signals.

To date no serious effort to create such an agreement has been made, and it remains questionable whether such an agreement would be given approval.  Such an agreement would be difficult to successfully negotiate because it would, first and foremost, send a bad signal as the WTO sanctioned a new form of potential protectionism.  Second, WTO agreements are negotiated by consensus and it would be unlikely to secure consensus when so many WTO members don't have binding emissions reduction targets under the Kyoto Protocol, and also may not under a post-Kyoto agreement.

6.0 THE COMPLICATIONS OF CARBON TARIFFS

Irrespective of their WTO compliance, carbon tariffs remain an incredibly complex instrument to impose, especially because of the preference for carbon price signals via a floating price under a CAT/ETS.

To ensure that it is WTO compliant any carbon tariff would need to be imposed equivalent to the same cost imposed on domestic producers which would require a "mind-blowingly elaborate carbon-measurement scheme, created on a global scale." ⁽⁶⁹⁾  Further, Corcoran suggests that implementing these tariffs would be "so complicated it would become a dangerous threat to trade stability." ⁽⁷⁰⁾

Even supporters of carbon tariffs concede "the devil is clearly in the implementation details," ⁽⁷¹⁾ suggesting that to impose carbon tariffs properly a panel of international carbon auditors would be required to measure carbon emissions for goods and "would have to be able to determine how much carbon emissions are embedded in the power drill that is nominally made in China, but is actually assembled from parts made in a dozen other countries.  Some of those countries may or may not have carbon control programs in place," ⁽⁷²⁾ giving rise to ROO issues.

For example, "a car from Mexico may have an engine from Brazil and electronics from Japan.  If we are going to account for this properly, we would need to know the carbon tax equivalent of each part of each good that was in effect at the time that part was produced.  If we need to come up with a weighted average carbon tariff, we'll also need to know how much each part contributed to the value of the overall good.  That varies over time and it varies by producer." ⁽⁷³⁾

These kinds of calculations would also rely on foreign manufacturers providing carbon content details for their products which they may be unwilling or unable to do. ⁽⁷⁴⁾  As Elizabeth Lynch highlights, any data collected from places like China where "implementation and enforcement on the local level is a perpetual struggle" may not be reliable. ⁽⁷⁵⁾

Further these decisions would need to be made at the border for both the direct and indirect carbon content of imports, including the content assessed as part of each product's PPMs. ⁽⁷⁶⁾  As the National Trade Board report highlights," given the number of variables in terms of production methods, capital stock, and energy sources, it is nearly impossible to accurately assess embedded emissions of goods at the border on a case-by-case basis without the assistance of fairly rigorous emissions monitoring and reporting in the country of origin." ⁽⁷⁷⁾

Wisely, the complexity of introducing a carbon tariff was the reason the Australian government rejected their use as part of its CAT/ETS arguing "border adjustments will be difficult at best, or in most cases unworkable.  The extensive foot printing of so many products with components across so many international boundaries makes this exercise nigh on impossible." ⁽⁷⁸⁾  Because of the complexity there is a general consensus in the literature that carbon tariffs could only reasonably be imposed to primary energy or basic products rather than final manufactured goods. ⁽⁷⁹⁾

In reality between the issues of legality and the complexity of their operation the benefits of carbon tariffs are likely to be massively outweighed by their costs caused by the administrative complexity of their application. ⁽⁸⁰⁾

7.0 WILL CARBON TARIFFS BE EFFECTIVE?

Putting aside the lack of certainty about their compliance under WTO law and the complexity of their introduction, carbon tariffs are also a questionable policy instrument to address the claimed risks of carbon leakage and the loss of domestic industry competitiveness.

The evidence supporting the effectiveness of carbon tariffs to stop carbon leakage is questionable.  While governments have argued that they may be an effective policy instrument, Bordoff found that "though estimates vary, most (studies) suggest that roughly 10 percent of the reduction in US emissions will be replaced by increases in foreign emissions," ⁽⁸¹⁾ the US EPA found US emissions would only be reduced by half a per cent with the introduction of a carbon tariff.  Lynch came to similar conclusions finding rigorous emission standards will not necessarily result in production shifting to countries without those standards. ⁽⁸²⁾  The Lowy Institute found that the impact of carbon "tariffs would be small on most traded goods, would reduce leakage of emissions reduction very modestly, and would do little to protect import-competing industries." ⁽⁸³⁾

And carbon tariffs are unlikely to have the effect of prompting countries without a carbon price signal to adopt one because of the threat posed to exports.  Colvin suggests that "carbon tariffs are unlikely to incentivize the kind of innovation or energy efficiency improvements by foreign companies that will lead to a reduction in global carbon emissions" because the measures are insufficiently responsive to an increase by individual firms in the carbon-efficiency of their production processes. ⁽⁸⁴⁾  Bordoff supports Colvin's conclusions arguing that "while some argue that border adjustments will induce developing countries to adopt greener practices, only a very small fraction of (carbon-intensive) products made in China are exported to the United States, so a border adjustment in the US would be a small stick with which to pressure China to implement more costly low-carbon production processes." ⁽⁸⁵⁾

Irrespective of their effectiveness, the introduction of carbon tariffs could prompt retaliatory trade measures.  Former US Trade Representative, Susan Schwab, highlighted a US carbon tariff would prompt retaliatory measures from trade partners that could "unfold long before any potential disputes were concluded in the WTO." ⁽⁸⁶⁾ James correctly identifies that the countries, notably the US, would find themselves "diplomatically isolated precisely when it was seeking to encourage closer international cooperation to combat climate change" ⁽⁸⁷⁾ if it introduced a carbon tariff.  And these concerns are supported by statements from Chinese Trade Representative, Zhang Xiangchen, who stated recently that retaliation from China is inevitable should the US impose carbon tariffs. ⁽⁸⁸⁾

Carbon tariffs are clearly a blunt policy instrument in addressing potential carbon leakage, especially in comparison to the costs they will impose.

8.0 THE COST OF CARBON TARIFFS

The actually financial costs of imposing carbon tariffs are unknown.  A study completed by the Samsung Economic Research Institute has estimated that "if a carbon border tax was imposed on South Korea, exports would fall by 3.9 per cent annually, equal to about $4.3bn per year." ⁽⁸⁹⁾

But some assessments of a potential carbon tariff can be assessed.  Table 1 includes calculated data for the approximate cost of carbon tariffs had those products been produced in the United States.  The carbon tariff rate for the five select (steel, aluminium, chemicals, paper and cement) carbonintensive products is based on import data into the US from all countries, excluding Annex B countries under the Kyoto Protocol who are bound to reduce their emissions.  Based on calculations for these five products alone the US would need to impose a carbon tariff worth more than USD$8.6 billion to offset the cost of a domestic carbon price signal, with most of the cost being imposed on imports from Asia.  With the cost of these imports in total amounting to more than USD$80.5 billion, an USD$8.6 billion tariff is equivalent to an average ten and a half per cent tariff imposed on carbon-intensive goods.

Table 1 | Carbon tariff values for select carbon-intensive products
by region, excluding countries bound under the Kyoto Protocol, USD$

Region	Steel	Aluminium	Chemicals	Paper	Cement	Regional total
Africa	$137,645,268	$35,980,980	$117,267,453	$3,270,453	$3,373,118	$297,537,272
Asia	$2,629,261,153	$431,615,953	$1,340,219,110	$381,951,943	$257,062,488	$5,040,110,647
Caribbean	$79,146,458	$2,597,631	$453,628,979	$1,049,693	$1,299,259	$537,722,020
Central America	$1,759,663	$10,300	$1,793,206	$1,437,235	$2,206,665	$7,207,069
Europe	$139,402,107	$13,454,318	$80,115,697	$582,981	$54,094,041	$287,649,144
Middle East	$21,502,589	$66,440,455	$117,937,443	$5,858,471	$15,925,654	$227,664,612
North America	$609,601,422	$141,020,748	$144,084,602	$77,596,905	$57,101,719	$1,029,405,396
Oceania & Australia	$4,583,323	$5,711	$6,545	$11,908	$33,425	$4,640,912
South America	$513,817,541	$224,084,969	$342,054,539	$81,399,500	$97,882,799	$1,259,239,348
Global total						$8,691,176,420

Source: Author's calculations, methodology outlined in Annex

And the cost could be more than just raising the price of imports into countries that have carbon price signals.  In a global supply chain Wolfram identifies that a carbon tariff is likely to harm the very industries it seeks to protect by imposing tariffs on imports from China which may be components and inputs into production in countries with carbon price signals.  The cost of doing so further reduces the competitiveness of the goods produced in countries with these price signals into export markets without them.  In particular industries like car manufactures that participate in a global supply chain will "have to pay tariffs on any steel or auto parts that they purchase from China ... driv(ing) up the cost of making automobiles in the United States relative to making them elsewhere.

A carbon tariff may also lead to retaliatory tariffs being placed on the goods we export to other countries.  Since China will be one of the largest consumers of cars in the next decade, we will be ensuring that General Motors, Ford, and Chrysler will have no choice but to make their cars in China in order to be competitive in that market." ⁽⁹⁰⁾  Other reports have found that "carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries like China move to more energy-efficient environments back home." ⁽⁹¹⁾

9.0 CONCLUSIONS

Despite rhetoric in their favour, there is clearly under-consideration by policy makers and politicians about the merit of carbon tariffs.

Carbon tariffs have been recommended as a policy instrument to assist domestic industries exposed to the cost of a carbon price signal through a CAT/ETS in competing against imports that are not, and the possible risk of carbon leakage as a consequence.  But the research shows that carbon tariffs are not an effective policy instrument for offsetting any leakage that may occur.

Further, the introduction of carbon tariffs is likely to breach the obligations of WTO members in violation of the most favoured nation principle and national treatment obligations.  And it remains unclear whether environmental exemptions will cover these violations.

Instead the most likely avenue for introducing WTO-compliant carbon tariffs is through the separate negotiation of a new WTO agreement.  But any such agreement is highly unlikely to secure passage through the WTO's consensus-based decision making model.

The research also shows that the practical implementation of carbon tariffs is a nightmare, and can only realistically be introduced as a border tax adjustment which conflicts strongly with the current design of carbon price signals through CAT/ETS.

Even if a carbon tariff operates as a border tax adjustment the capacity to assess the carbon-component and rate of the application of a tax would require regulation and administration far in excess of the benefit of such a scheme.

And while there are no concrete estimates of the cost imposed from a carbon tariff, a conservative estimate of a possible US carbon tariff imposed on only five select carbon-intensive products would be equivalent to the imposition of a new ten and a half per cent tariff worth USD$8.6 billion.

Instead of being a panacea to the international trade consequences of domestic carbon price signals, carbon tariffs are likely to only inflict further damage.  They are not an effective policy instrument to achieve the desired policy outcome and they bring with them substantial costs that far exceed their benefit.

10.0 ANNEX | CARBON TARIFFS
CALCULATION METHODOLOGY

Estimating the cost of a carbon tariff on five select products is based on data provided by the Peterson Institute, the US government's TradeStats Express and the Heritage Foundation.

In its report Levelling the carbon playing field the Peterson Institute outlined a series of US carbon-intensive products and their principle source of carbon emissions through energy consumption, and the contribution of energy as a percentage of their total price.

Value data was then extracted from TradeStats Express for all imports for these products from all countries, excluding those with binding emissions reduction targets under the Kyoto Protocol.  The TradeStats data selected for each category is provided in Table 2.

Table 1 | TradeStats classifications for five select
carbon-intensive goods, and energy shares of value

Category	TradeStats Specific classification	Peterson Institute energy share
Steel	72 -- Iron and steel 73 -- Articles of iron and steel	11.62% 11.62%
Aluminium	76 -- Aluminium and articles thereof	19.83%
Chemicals	28 -- Inorganic chemicals, precious and rare earth metals & radioactive compounds 29 -- Organic chemicals 38 -- Miscellaneous chemical products	16.64% 11.47% 4.28%
Paper	48 -- Paper & paperboard & articles 49 -- Printed books, newspaper etc;  Manuscripts etc 47 -- Wood pulp etc;  Recovered (Waste & scrap)	7.27% 7.27% 7.27%
Cement	68 - Cement (Includes art of stone, plaster, cement, asebestos, mica, etc.).	16.58%

Notes:

The energy share for Inorganic chemicals, precious and rare earth metals & radioactive compounds is the average for all inorganic chemicals

The energy share for miscellaneous chemical products was the standard share for all chemical products

This value data was then multiplied by the relevant percentage of energy as a contribution to the final cost of the product provided by the Peterson Institution.  This calculation provided an approximation of the energy cost for all of these imports into the United States.

This value data was then multiplied by the estimated increase in the cost of electricity, presumed to be the principle energy component of these products, by the Heritage Foundation. ⁽⁹²⁾  The remaining value data is an approximate of the overall cost increase of these five select carbon intensive products that would be required to reflect the increase in cost if they were exposed to a US carbon price signal.

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---

ENDNOTES

1.  Houser, T et al., 'Leveling the Carbon Playing Field:  International Competition and US Climate Policy Design', Peterson Institute for International Economics, World Resources Institute, 2008, retrieved 18/11/09, page 30.

2.  A countervailing duty is an import duty added to imports in order to offset subsidies granted to exporters by the exporting country in an attempt to return the imported product to its market price and ensure a level playing field.

3.  Houser, T et al, above n 1, page 30.

4.  Houser, T et al, above n 1, page 30.

5.  James, S 'A Harsh Climate for Trade:  How Climate Change Proposals Threaten Global Commerce', Trade Policy Analysis, CATO Institute, September 2009, no. 41, retrieved 18/11/09.

6.  Bordoff, J 'International Trade Law and the Economics of Climate Policy:  Evaluating the legality and effectiveness of proposals to address competitiveness and leakage concerns', Forthcoming in Climate Change, Trade and Competitiveness:  Is a Collision Inevitable?, Brookings Global Economy and Development, 2008, retrieved 18/11/09, page 27.

7.  Houser, T et al, above n 1, page 29.

8.  Deal, T 'WTO Rules and Procedures and their Implication for the Kyoto Protocol', A discussion paper, United States Council for International Business, 2008, retrieved 18/11/09, page 3.

9.  McKibbin, W & P Wilcoxen, 'The Economic and Environmental Effects of Border Tax Adjustments for Climate Policy', International Economics, Lowy Institute for International Policy, February 2009, no. 109 retrieved 18/11/09, page 3.

10.  Ellerman, D & P Joskow, 'The European Union's Emissions Trading System in Perspective', Massachusetts Institute of Technology, retrieved 18/11/09.

11.  Wynn, G 'EU Considers Carbon Tariff as Part of Climate Push', Reuters, 7 January 2008, retrieved 18/11/09.

12.  Deal, T, above n 6, page 4.

13.  Shanley, M and I Wissenbach, 'Germany calls carbon tariffs “eco-imperalism”', Reuters, 24 July 2009, retrieved 18/11/09.

14.  Ibid.

15.  German Coalition Agreement 2009 retrieved 18/11/09 and English translation of relevant provision.

16.  Oxley, A 'Oxley:  Bill Could Create a Trade War', Roll Call, 9 November 2009, retrieved 18/11/09.

17.  Johnson, K 'Trade Tensions:  Sen. Baucas Says Climate Bill Must Protect US Industry', The Wall Street Journal, 10 November 2009, retrieved 19/11/09.

18.  Yu, V 'New Climate Protectionism:  Analysis of the trade measures in the US climate bill', South Bulletin, Issue 40, 10 September 2009, pp. 5-7, page 6.

19.  'American Clean Energy and Security Act of 2009', as passed 26 June 2009, retrieved 18/11/09.

20.  'Clean Energy Jobs and American Power Act' as Introduced 30 September 2009, retrieved 18/11/09 Section 765.

21.  Power, S 'US Official Expects Commitment to Climate Financing', The Wall Street Journal, 17 November 2009, retrieved 18/11/09.

22.  'Carbon Pollution Reduction Scheme:  Australia's Low Pollution Future', Department of Climate Change, 2008, retrieved 23/11/2009, Volume 2, Chapter 12, Page 15.

23.  Carbon tariffs are not the only potentially inconsistent trade measure to offset the cost of a domestic carbon price signal, a discussion of the potential impacts of subsidies is included in Wood, R.J., 'Australia's delinked and non-compliant emissions trading scheme', 2009

24.  Pauwelyn, J 'US Federal Climate Policy and Competitiveness Concerns:  The Limits and Options of International Trade Law', Nicholas Institute for Environmental Policy Solutions, 2007, retrieved 18/11/09, page 41.

25.  Bergsten, F & L Wallach, 'Cooling the Planet without Chilling Trade', The Washington Post, 14 November 2009, retrieved 18/11/09.

26.  Lincicome, S 'Germany Hates on Carbon Tariffs', Scott Lincicome Personal Blog 26 July 2009, retrieved 18/11/09.

27.  The General Agreement on Tariffs and Trade 1947 (GATT), in 'The Legal Texts -- The Results of the Uruguay Round of Multilateral Trade Negotiations', World Trade Organization, Cambridge University Press, 2007 pp. 424-492, Article I.

28.  'Japan -- Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages', Report of the Panel, World Trade Organization, 1987, retrieved 18/11/09 at 3.11 and 3.12.

29.  'European Communities -- Measures Affecting Asbestos and Asbestos-Containing Products', Report of the Appellate Body, World Trade Organization, 2001, retrieved 18/11/09, para 99.

30.  'United States -- Import Prohibition of Certain Shrimp and Shrimp Products', Report of the Appellate Body, World Trade Organization, 1998 retrieved 18/11/09.

31.  De Cendra, J 'Can Emissions Trading Schemes be coupled with Border Tax Adjustments?  An Analysis via-a-vis WTO Law', Review of European Community and International Environmental Law, 2006, vol. 15, no. 2, pp. 131-145, page 142.

32.  Bordoff, J, above n 2, page 12.

33.  Ibid, page 10.

34.  Pauwelyn, J above n 25, page 19.

35.  Ibid.

36.  'US-Shrimp', above n 30 and 'Brazil -- Measures Affecting Imports of Retreaded Tyres', Report of the Panel, World Trade Organization, 2007, retrieved 18/11/09.

37.  'United States -- Taxes on Petroleum and Certain Imported Substances', Report of the Panel, World Trade Organization, 1987, retrieved 18/11/09.

38.  Cosbey, A & R Tarasofsky, 'Climate Change, Competitiveness and Trade', Chatham House, 2007, retrieved 18/11/09.

39.  Bordoff, J, above n 2, page 15.

40.  Ibid, page 17.

41.  Shoyer, A 'WTO Background Analysis of International Provisions of US Climate Change Legislation', Sidley Austin, retrieved 18/11/09, page 2.

42.  GATT, above n 27, Article III:4.

43.  Ibis, Article III:1.

44.  'United States -- Standards for Reformulated and Conventional Gasoline', Report of the Appellate Body, World Trade Organization, 1996, retrieved 18/11/09.

45.  Houser, T et al, above n 1, page 35.

46.  Courchene, T & R Allan, above n 3, page 63.

47.  Oxley, above n 14.

48.  GATT, above n 27, Article XX(g).

49.  'Canada -- Measures Affecting Exports of Unprocessed Herring and Salmon', Report of the Panel, World Trade Organization 1988, retrieved 18/11/09 at 4.6, 'US-Gasoline', above n 44 and 'US-Shrimp', above n 30.

50.  Bordoff, J, above n 2.

51.  'US-Shrimp', above n 30, para 26.

52.  Ibid, para 141.

53.  Pauwelyn, J above n 25, page 36.

54.  Bordoff, J, above n 2, page 18.

55.  James, S, above n 4.

56.  Pauwelyn, J above n 35.

57.  'US-Gasoline', above n 44, page 21.

58.  GATT, above n 27, Article XX(b).

59.  GATT, above n 27, Article XX.

60.  Pauwelyn, J above n 37.

61.  'US-Shrimp', above n 30, para 166.

62.  Bordoff, J, above n 2, page 20.

63.  Cosbey, A & R Tarasofsky, above n 38, page 17.

64.  Shoyer, A above n 41, page 1.

65.  Pauwelyn, J above n 23.

66.  McKibbin, W & P Wilcoxen, above n 7, page 14-15.

67.  Courchene, T 'Climate Change, Competitiveness and Environmental Federalism;  The Case for a Carbon Tax', Background Document for a Canada 2020 Address, June 3, 2008, retrieved 18/11/09, page 9-10.

68.  James, S, above n 4, page 12.

69.  Corcoran, T, 'Blowing up the WTO', Financial Post, 1 April 2008, retrieved 18/11/09.

70.  Ibid.

71.  Courchene, T & R Allan, above n 3, page 62.

72.  Corcoran, T, above n 69.

73.  Levy, P 'Krugman's Carbon Fetish', The Enterprise Blog, 14 September 2009, retrieved 18/11/09.

74.  Bordoff, J, above n 2, page 13.

75.  Lynch, E 'the US Climate Change Bill:  International Trade Implications & China', China Law & Policy, 7 September 2009, retrieved 18/11/09.

76.  McKibbin, W & P Wilcoxen, above n 7, page 12.

77.  Houser, T et al, above n 1, page 34.

78.  Department of Climate Change, above n 20, page 16.

79.  Lucenti, K 'Carbon tariff might be legal as a VAT', Financial Post, 30 April 2008, retrieved 18/11/09.

80.  McKibbin, W & P Wilcoxen, above n 7, page 20.

81.  Bordoff, J, above n 2, page 4.

82.  Lynch, E above n 74, page 107.

83.  McKibbin, W & P Wilcoxen, above n 7, page 14-15.

84.  Colvin, J 'Obama v Krugman:  Five Reasons the President's Right on Carbon Tariffs', The Huffington Post, 16 September 2009, retrieved 18/11/09.

85.  Bordoff, J, above n 2, page 5.

86.  Schwab, S, Letter to Honorable Joe Barton, 4 March 2008, retrieved 18/11/09.

87.  James, S, above n 4, page 13.

88.  Stanway, D & W Lan, 'Carbon tariff proposals unworkable -- China WTO rep', Reuters, 29 October 2009, retrieved 18/11/09.

89.  Chan, Y 'South Korea pledges to set carbon emissions target for 2020', BusinessGreen.com, 4 August 2009, retrieved 18/11/09.

90.  Wolfram, G 'Government intervention may have unintended consequences to US industries', Mlive.com, 20 October 2009, retrieved 18/11/09.

91.  Rubin, J & B Tal, 'The Carbon Tariff', CIBC World Markets Inc, Economics & Strategy Report, 27 March 2008, retrieved 18/11/09 and Thorpe, J 'Possible carbon tariffs could have an impact on growth:  report', National Post, 27 March 2008, retrieved 18/11/09.

92.  Heritage Foundation calculations were based on data from IHS/Global Insight Energy Modelling.