Environmental impacts such as carbon emissions should be captured at the border, in the form of tariffs which level the playing field between competitor producer countries, a prominent UK economist and government adviser has argued.
In an exclusive interview (below) with Borderlex, Professor Dieter Helm, an Oxford University academic and Independent Chair of the UK’s Natural Capital Committee, has argued that there needs to be an environmental dimension to trade policy which allows all externalities to be fully integrated in market prices.
“It is protectionist not to include these in the price of imports,” Helm maintains, claiming that example countries like China were effectively ‘subsidising’ their goods exports by not pricing in the cost of their carbon emissions.
The academic has been prominent in promoting the concept of ‘natural capital’ as a way of capturing a balance of environmental assets and liabilities – a concept which has informed the policy direction of UK environment secretary Michael Gove.
At a recent conference organised jointly by the UK National Farmers Union and the Sustainable Food Trust, Helm had been quoted as saying that farmers in the UK would be “chucked to the wolves” if measures were brought in domestically to reduce carbon emissions from UK agriculture without adequate tariffs on imports.
Closing the gap, hidden subsidies and more
Borderlex quizzed Professor Helm about the ability of international trade policy to take on the task of closing the gap between countries with differing carbon emission records, about hidden ‘subsidies’ to Chinese producers, and about concerns over the impact of the recently-concluded EU-Mercosur FTA.
Borderlex: Was your comment at the NFU/Sustainable Food Trust conference a criticism of the UK’s ‘no deal’ tariff schedule, which zero-rates a lot of products? Or do you think that tariff protection for agriculture over and above the existing EU MFN rates is called for?
Helm: I am not arguing for “protection” but rather a level playing field for agriculture. That means that the full externalities are all properly incorporated at the border — including carbon, animal welfare and other dimensions of environmental pollution. It is protectionist not to include these in the price of imports. For example China is in effect subsidising its energy intensive exports by not incorporating a carbon price. An efficient market is one where all these externalities are fully integrated in market prices. This is something I explain in my book Green and Prosperous Land.
Borderlex: To what extent, and in what ways, is there a legitimate case for having a climate change/environmental dimension to trade policy? Would such tariffs not simply ‘export’ the problem of carbon emissions to other geographies?
Helm: Not having a carbon price exports the problem. Think of the example of British Steel. The UK could allow this to close. It would reduce emissions in the UK, and contribute towards our new zero target. But since we would import the steel instead it would probably (almost certainly) increase global warming. For example, if it comes from China and China has no carbon price, the absence of a border adjustment leads to an artificial trade advantage to the coal-intensive Chinese steel industry, and also to the shipping required.
Borderlex: The legal grounds for discriminating on the basis of environmental criteria at WTO level are rather unclear. Do you think the time has now come to lobby for changes to world trade rules?
Helm: The WTO rules explicitly allow for environmental considerations. There is a good case for making this much more explicit, in the interests of fair trade, and in the interests of the environment generally. The great globalisation of the last couple of decades has been generally pretty bad for the environment. This is not inevitable, but it should not go on.
Borderlex: Given that the environmental sensitivity of farming and industrial practices varies widely around the world, is the pursuit of global climate change mitigation basically incompatible with free trade?
Helm: Mitigating climate change and free trade are compatible, provided there is a common carbon price. Since there isn’t, the second best approach is to apply a carbon border adjustment.
Borderlex: There has been criticism of the recently-concluded EU trade deal with Mercosur, given concerns over deforestation in Brazil. Would you share that criticism?
Helm: The Mercosur trade deal raises very significant concerns, It has been described as “cars for cows”, and indeed most of the EU’s imported beef will now come from this area. Take the Amazon and Brazil. The Amazon rainforest is being cut down at roughly one hectare per minute (!), to make way for cattle grazing. If that beef now has easier access to the EU markets, the result is that the EU will be encouraging this destruction, which in turn will be highly damaging to both biodiversity and exacerbate global warming. This is incredibly inefficient. The deal does include environmental considerations, but if these were properly applied I very much doubt there would be greater beef imports, and actions should be taken to deter Brazil from the destruction it is causing.
There might even be a case for considering trade sanctions in these agricultural areas. (Soya and sugar cane for ethanol also raise very serious environment concerns in Brazil). Unfair competition from more polluting sources would displace British production, which is to much higher standards. This may well contribute to a sharp contraction of uplands sheep and cattle, and that in turn would impact grazing and have its own environmental consequences there too.
Professor Dieter Helm is an economist specialising in utilities, infrastructure, regulation and the environment, and concentrating on the energy, water, communications and transport sectors primarily in Britain and Europe. He is a Professor at the University of Oxford and Fellow of New College, Oxford.
In December 2015, he was reappointed as Independent Chair of the Natural Capital Committee.
He is the author of a number of books, including Green and Prosperous Land, published in March 2019.