Trade deals, carbon taxes and cakeism

The UK government wants to liberalise trade and fight climate change. Is a carbon border adjustment mechanism the only way to do so? Nick Hughes reports.

A draft UK trade deal with Australia has united farmers and environmentalists in concern over its implications for food and the environment, including the potential for lower-quality imported meat to find its way into the UK foodservice sector.

Setting aside the promise of improved market access for British producers of Penguin bars and Scotch whisky, there are worries the deal simply doesn’t stack up against the UK government’s own environmental commitments, not least its role in championing global action on climate change as host of this November’s critical COP26 summit in Glasgow.

For instance, at a time when the government’s own climate advisers are urging the public to reduce their meat consumption the agreement in principle incentivises Australian producers to fly an already high-emitting product halfway around the world by removing tariffs on beef and lamb.

The idea that you can liberalise trade while at the same time leading the fight against climate change might – for certain high-impact food products – qualify for what the prime minister Boris Johnson describes as “cakeism” (otherwise known as having one’s cake and eating it).

So could a carbon border adjustment mechanism (CBAM) provide a solution?

A CBAM is the kind of proposal that sets pulses racing among policy wonks while sending the rest of the public into torpor. And yet momentum is building behind the idea as a way of pricing a country’s greenhouse gas emissions into the cost of trade. When the European Commission adopted its communication on the European green deal in December 2019 with the aim of achieving net-zero emissions across the bloc by 2050, a CBAM was proposed as one of the key ways it could achieve it.

So, what is a CBAM? Essentially, it imposes a carbon tax on imports of certain goods produced outside a country’s borders. The aim is to reduce ‘carbon leakage’ whereby production emissions are relocated overseas from where the product is actually consumed. It’s hoped CBAMs will push trading partners to improve their climate ambitions while offering some protection to domestic producers who may be subject to stricter climate and environmental rules.

Outsourcing emissions

For proponents, a CBAM can be one way to address the issue that simply fixing territorial emissions, which are the basis of national net-zero targets, does not reduce global emissions if those emissions are leaked overseas.

“It doesn’t matter where carbon is emitted as to its impact on the concentration of carbon in the atmosphere,” said Dieter Helm, professor of economic policy at the University of Oxford, when opening a recent Food Ethics Council debate on the case for a UK CBAM. “We’ve been causing a lot of climate change by outsourcing carbon intensive products to countries overseas like China and importing them back again.”

Helm argued that carbon costs have to be incorporated into the costs of production. “Not to price carbon is ultimately to live unsustainably and beyond our carbon means,” he added.

Of particular sensitivity concerning the UK-Australia deal is the notion that if Australian farmers are not required to meet the same environmental standards as their UK counterparts, they could gain a competitive advantage from the removal of tariffs.

A CBAM promises a trade-based solution to the problem by effectively linking emissions to import duty – the more you emit the more you pay. However, it’s not without its limitations.

One key challenge is over the ever-thorny question of how to calculate, and subsequently price, emissions. Helm argued that trying to be perfectly right where data is concerned is the enemy of trying to be roughly right. “You can try and devise the perfect system [of CBAM but] you’ll spend years doing it,” he said.

However, Jack Watts, agri-food policy delivery manager at the National Farmers’ Union (NFU), although he accepted Helm’s argument that we can become too perfectionist about emissions data, explained that using global proxies in calculating, for instance, the emissions from beef doesn’t allow any differentiation for emerging or more sustainable farming systems.

Beyond carbon

The challenge around emissions calculations is not the only argument against a CBAM. Another is that its focus is too narrow. Although carbon is a key sustainability indicator, it is far from the only one. Water use, soil health, animal welfare, biodiversity, economic and social impact are all key elements (among many others) of what makes a food product sustainable. “If you want carbon-friendly beef then you want beef grown using hormones,” said Watts, illustrating the paradox facing policy makers. “It’s important we don’t get too purist.”

Angela Francis, chief advisor for economics and economic development at WWF-UK, argued that while a CBAM might work for some sectors like steel, there are better tools in a country’s trade toolkit to deal with the complexities and trade-offs surrounding agricultural products – which extend beyond environmental indicators to those concerning public health.

The alternative she proposed is to require imported products to meet UK legislative standards. “Core standards would be a better first step,” Francis said. “We have import rules already for food safety [….]; they apply to all food for sale in the UK.” What we now need, she argued, are the same kind of import rules for the environment and animal welfare.

Development cost

Another charge levelled against a CBAM is that it risks punishing developing countries whose exports might become less competitive with a knock-on negative effect on domestic revenues and jobs. Chiara Putaturo, EU inequality and tax policy advisor at Oxfam, said it could “undermine investment in a just transition” and impact the ability of developing countries to tackle climate change through loss of national income.

If regressive impacts of a tax can’t be avoided, Putaturo said countries imposing carbon border taxes will need to think about compensation measures including using revenues to help developing countries tackle climate change.

It’s clear that, where food is concerned, a CBAM is a far from perfect solution to the climate and other environmental crises facing the world. It could even be self-defeating if it allows companies to carry on polluting so long as they can pay for it.

But these are the conversations and ideas that will need to be prosecuted as the UK looks to deliver the prime minister’s vision for “global Britain”, while leading the kind of action on climate change that will arguably be more important in shaping his legacy.

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