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      in World Politics

      The CO2 Border Adjustment for the EU

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      The heads of state and government of the European Union propose introducing a “carbon border adjustment mechanism” from 2023, to charge imported goods according to the CO2 emitted during their production. At their recent summit, they decided to use the ensuing revenues to boost the EU’s budget. This gives a fiscal twist to an instrument actually designed for climate policy.

      Ursula von der Leyen, the president of the European Commission, had already announced in 2019 that she would like to introduce a “carbon border tax” as part of her European Green Deal. In spring 2020, the commission launched a roadmap process to prepare concrete legislative proposals by 2021. Its proposal also responds to fears that higher European CO2 costs caused by EU emissions trading (EU ETS) could cause companies to relocate activities outside the union, causing carbon leakage.

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      Outsourcing would contribute to reducing European emissions, but not to tackling the global problem. To date, the European Union has addressed the risk of relocation by allocating free emission allowances to sectors at risk of carbon leakage. A CO2 border adjustment could create an alternative with a global impact.

      There is rising support for the idea, after years of resistance from many EU member states and business associations. And the pressure is set to grow, with an increase in the EU’s climate target for 2030 — and anticipated higher CO2 costs for EU businesses — expected this fall. Furthermore, a CO2 border adjustment for foreign products will be widely interpreted as a clear message, especially to Washington and Beijing, that the EU intends to implement the 2015 Paris Agreement. When designing the instrument, it will be important to comply with World Trade Organization (WTO) rules and to get important trading partners on board. 

      WTO-Compatible Design

      The European Commission proposes three ways in which a “carbon border adjustment mechanism” could be implemented: “a carbon tax on selected products, a new carbon customs duty or the extension of the EU ETS to imports.” From a trade law perspective, any of these options could be designed in accordance with WTO rules. The crucial aspect is the principle of non-discrimination: that a CO2 border adjustment must not differentiate among like products or between WTO members. If it were necessary to depart from the principle, for example, where a trading partner or individual company is able to demonstrate that it is already taking care of emissions reductions, the rules for exceptions would need to be observed.

      An EU-wide CO2 “product tax” and its implementation by the EU member states would be the most straightforward approach from a trade law perspective. To do this, the EU would first have to levy a CO2 tax on goods manufactured in the European Union. Then, it would be unproblematic to apply this tax to imports as well — the value-added tax, for example, follows this approach. Imported “like” products would be treated the same way as domestic products, which is WTO-compliant.

      Extending the EU ETS to industrial imports would be more complex. The task for the European. Commission would be to demonstrate that under trade law, the CO2 allowance price is ultimately equivalent to a “product tax.” Failing that, the commission could argue that it was acting to protect a global resource, i.e., that avoiding carbon leakage was the central aim of the EU legislation. The “conservation of exhaustible natural resources,” which includes the Earth’s atmosphere, is a valid ground for violating WTO principles, subject to certain conditions. Such an exemption would also have to be claimed for a new CO2 customs duty.

      However, the European Council decision has exacerbated the risk that WTO dispute settlement panels will regard the new instrument as a means of generating income, rather than a means to protect the climate. This would make a difference if trading partners challenged the new tool. The climate focus, which would be taken into account in WTO rulings, is currently slipping into the background.

      Don’t Underestimate the Diplomatic Effort

      A CO2 border adjustment mechanism will need extensive explanation given the many open details, and it can only promote international climate policy cooperation if trade partners are informed at an early stage and regularly consulted. For this, the European Union should use WTO forums and the climate regime as well as other international organizations. In 2012, the European Commission was made painfully aware of the difficulties involved in going it alone, after seeking to include international aviation in the EU ETS. Major partners put political pressure on the EU, even threatening sanctions, and the union decided to backtrack and reduce the coverage of the ETS to flights within the European Economic Area.

      Trust can only arise if the EU adheres to multilateral climate and trade agreements — i.e., supports the Paris Agreement and the troubled WTO and expresses this clearly and often. This task has probably become much more difficult after the European Council decision because a fiscally-motivated border adjustment cannot be convincingly attributed to these multilateral concerns — especially as the revenues would flow to the EU rather than to funds supporting climate protection, for example, in poorer countries. If a CO2 border adjustment specifically targeted cement, steel and other energy-intensive industries, as has already been discussed, producers from emerging and industrialized countries would be especially affected.

      The union should start discussions with these countries without delay. A good opportunity will arise at the meeting of G20 finance ministers in Saudi Arabia toward the end of the year. In addition, the EU should insist to the US that this initiative is not intended as a provocation in the smoldering customs dispute. Ultimately, the climate policy success of a CO2 border adjustment will depend on how the world’s major economies react to it.

      *[This article was originally published by the German Institute for International and Security Affairs (SWP), which advises the German government and Bundestag on all questions relating to foreign and security policy.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      in World Politics

      How Will the UAE Cope With Growing Environmental Insecurity?

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      Amid the COVID-19 pandemic, the world is “living through an unrivalled drop in carbon output.” According to the International Energy Agency, global use of energy will drop 6% in 2020, an amount that equals India’s total energy demand. Worldwide demand for electricity has already fallen 5%, which is the largest amount since the Great Depression of the 1930s. The dramatic decline in pollution resulting from economic lockdowns was apparently visible and recorded by numerous satellites. However, it will take a decade of this kind of economic lockdown to make a significant impact on global warming and truly curb carbon emissions.

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      Environmental pollutants are indifferent to national boundaries. Addressing climate change requires long-term international cooperation. All countries must make serious and collective efforts to stop irreversible damage caused by climate change.

      The Environment-Security Nexus

      The United Arab Emirates is among the world’s biggest per capita emitters of greenhouse gases. In fact, the World Wide Fund for Nature has ranked the UAE as having the world’s highest per capita environmental footprint, which largely has to do with the unsustainable megaprojects that began in the Emirates amid the oil boom of the 1970s.

      Other factors such as the desert country’s climatic conditions are in the picture too. There are also the popular modes of transportation within the Emirates: According to a survey conducted by the Department of Transport in 2014, “60 per cent of Abu Dhabi and Dubai residents who owned a car said they never used public transport. Only two to three percent use public transport frequently.” This is in part due to the long-standing car culture in the Emirates and relatively cheap fuel as well as car prices, but also because of connectivity problems to certain destinations.

      As outlined by Jon Barnett in his 2013 essay “Environmental Security,” environmental problems pose threats to the national well-being as well as the quality of life of the inhabitants of any state. Analysts and scholars refer to environmental security when discussing the threats and dangers emanating from the environment. The principal source that threatens ecological security is human activity. The environment is one of the seven sectors outlined in the United Nations Development Program’s early definition of human security, and environmental change has long been identified as a human security issue.

      The Emiratis have been struggling with a number of environmental threats for decades. Today, numerous environmental issues — including pollution, waste, land degradation, desertification, biodiversity loss, etc. — all impact the UAE. Waste and air pollution constitute major challenges, in particular outdoor air pollution. The UAE ranks in the bottom fourth globally in exposure to particulate matter — tiny particles of sand, dust or chemicals registered at elevated levels that are highly dangerous and associated with risks of numerous diseases such as cancer, as well as respiratory and heart diseases. In 2017, the Environment Agency of Abu Dhabi considered poor air quality to be a “primary environmental threat to public health.”

      In terms of water, the UAE continues to have highly unsustainable groundwater extraction rates. Being largely a desert country, the contamination of its fresh groundwater reserves and seawater endangers the UAE’s future. Some experts have warned of the imminent depletion of groundwater sources by 2030.

      In the area of biodiversity conservation, the UAE boasts a number of protected areas both on land and in the sea. But its fish stocks are in a critical state. Overfishing and heavy commercial maritime shipping across the Persian Gulf have also contributed to a potentially irreversible decline in the health of fragile coral reefs off the coast. Silt from shoreline construction has had a negative impact on coral.

      “Greening” the Emirati Economy

      The UAE has long acknowledged climate change as a serious threat multiplier to the country and is ahead of the curve when compared to other countries that are still debating the seriousness of the issue or even outright denying its reality. Recognizing these environmental threats, the UAE has been in the process of “greening” its economy by developing a solar energy sector along with a nuclear energy sector and managing its scarce water resources with an emphasis on conservation and efficiency. It has been at the forefront of the renewables revolution with its solar farms while very slowly transforming its thermal desalination plants into reverse osmosis desalination facilities that produce far fewer greenhouse gas emissions.

      The UAE Vision 2021 document contains as one of its wide-reaching goals a “well-preserved natural environment” and seeks to address various environmental threats to the country. The Emirate of Abu Dhabi has put in place its Environment Vision 2030 strategy, which lists five priority areas, namely climate change impacts, air and noise pollution, water resources, biodiversity and waste. The UAE government has set up various institutions and initiatives to address environmental issues in the previous decades such as the Environment Agency — Abu Dhabi, the Abu Dhabi Global Environmental Data Initiative and the Arab Water Academy, and has signed and ratified numerous international and regional environmental conventions. The government has launched a variety of awareness campaigns pertaining to environmental issues in order to educate different sectors of society.  

      According to Dr. Taoufik Ksiksi, a plant biologist and climate change researcher at the United Arab Emirates University at Al Ain, these awareness campaigns were not quite sufficient: “More needs to be done to raise the awareness levels, especially at the lower levels, in schools with young people, and there have to be substantial changes to the curriculum to incorporate courses on environmental sciences, native ecology and conservation in general,” he said in a phone interview. In addition, Ksiksi suggests that “more robust climate modeling approaches that focus primarily on the region need to be developed with increased processing power that take into account regional circumstances and are not geared towards climate conditions prevalent in Europe.”

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      Dr. Ksiksi thinks that UAE’s advantage is that it enjoys “the benefit of resources than can fund technology and new initiatives.” Yet the lack of synergy in terms of regional cooperation in the area of green economy building in the Arabian Peninsula somewhat hampers such efforts.    

      The UAE has for some time now incorporated narratives of sustainable development into the country’s national policy aims. Masdar City, described as a city of the future, is perhaps the best known and most ambitious example of an avowedly green megaproject. Other projects such as Sustainable City and Desert Rose City are additional examples of green cities that emphasize technological innovation in Masdar City’s manner.

      The greening of the Emirates takes on a central aspect of the modernization narrative. The main gist is that the existing ecological challenges can be measured, and existing institutions and policies find solutions to the problems. According to Dr. Gökçe Günel, the UAE is making a serious effort to maintain its status quo while offering up “technical adjustments” to environmental challenges. Sustainable development juxtaposes intense economic development along with high consumerism coexisting with an environmentally friendly and responsible society. This reveals a paradox in the greening process currently in place.

      These projects are small in scale and only take on a tiny space in the overall urbanity of the country. They take place in a bounded environment and constitute living laboratories that pioneer green technology. But they cannot be replicated on a larger scale or implemented and applied across the whole territory.

      Inevitably, rapid urban growth and transnational migration flows have massively enlarged the ecological footprints of countries such as the UAE. It will be very difficult to achieve sustainable development while Arab Gulf states subsidize massive energy consumption, continue to expand urban sprawl and expansion, and allow for traffic congestion while remaining careless about water and electricity consumption.

      *[Gulf State Analytics is a partner organization of Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

    • 225 Shares99 Views

      in US Politics

      Biden has shown that bold climate action is now common sense. Will UK politicians learn? | Matthew Pennycook

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      Opinion

      Joe Biden

      Biden has shown that bold climate action is now common sense. Will UK politicians learn?

      Matthew Pennycook

      His pledge to create millions of well-paid jobs, boost public transport and cut inequality highlights Britain’s lack of ambition
      • Matthew Pennycook MP is the shadow minister for climate change More

    • 88 Shares179 Views

      in World Politics

      Beijing’s BRI Hubris Comes at a Price

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      Despite more than 3,000 years of Chinese history, many of the world’s countries had little to no direct experience with China or Chinese investment prior to the launch of the Belt and Road Initiative (BRI). There was a presumption on the part of many governments that international best practices were well established and that China would be in compliance with those standards as it rolled out the initiative. As they now know, that often turned out not to be the case, but the fact that the Chinese business model is a mix of public and private sector participation, rules and regulations that are not necessarily logical or coherent and are often misunderstood has complicated matters.

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      For all concerned, the BRI has in many ways been a leap in the dark, since such an ambitious undertaking had never before been attempted. The Chinese government, and many of the nation’s companies active in the initiative, were, and remain, on a learning curve. The enforceability of Chinese regulations on private sector Chinese companies operating overseas can be inconsistent, and Chinese-built infrastructure has, at times, been found to be substandard. Regulations governing the practices of Chinese firms are frequently revised, leaving many organizations scrambling to keep up in the public and private sectors. It then takes a while for new guidelines to translate into practice abroad.

      BRI Financing

      BRI financing is highly dependent on loans from the China Development Bank, China Export-Import Bank and other state-owned commercial banks. China’s foreign exchange reserves are important sources of capital for these institutions. Although Beijing maintains the world’s largest aggregation of foreign currency, its foreign reserves have declined in recent years, which, when combined with its dramatically slowing economy, raises questions about the sustainability of BRI financing in the medium term.

      Under the presumption that foreign capital and support from multilateral financial institutions will be required to sustain BRI projects in the future, China’s Ministry of Finance established the Multilateral Cooperation Center for Development Financing with eight multilateral development banks and financial institutions. The center is expected to enhance the project financing process through a combination of better information sharing, improved project preparation and capacity building. The ministry has also developed the Debt Sustainability Framework for Participating Countries (DSF) of the BRI, collaborating with its counterparts from 28 partner countries. China’s DSF is virtually identical to the World Bank-International Monetary Fund DSF, which governs lending operations for the multilateral institutions and many bilateral lenders. That should increase its prospects for success.

      China’s effort is a significant step forward in guarding against the debt challenges associated with the BRI. Debt sustainability can only grow in importance for Beijing. As the BRI progresses, China will have no choice but to take steps to improve reporting transparency vis-à-vis financing, transaction structures and debt repayment. As for host governments that have become saddled with tens of billions of dollars of debt as a result of debt-trap diplomacy, their concerns have been widely shared with Beijing. Many of these nations have already become more discriminating BRI consumers. Although the trail of debt-related issues will certainly not diminish going forward, they will hopefully become less severe in time.

      The Chinese government has sought to integrate the BRI with its green growth agenda in an attempt to address criticism of its continued reliance on coal power and the lack of environmental oversight on Chinese infrastructure projects. Although Beijing has made great strides toward improving environmental and resource productivity, greater efficiency gains are vital to achieving a shift toward low-carbon, resource-efficient, competitive economies. Future progress will largely depend on the country’s capacity to integrate environmental aspects into the decision-making process for all its domestic and foreign policies to ensure that industrial and environmental policy objectives and measures are well aligned and mutually supportive.

      Reputational Risk

      At ongoing risk also is China’s reputation. The blowback it has experienced as a result of its rollout of the BRI from countries around the world has been unprecedented. The same may be said about its trade practices with the US and its response to COVID-19. Many of the world’s governments and people have simply lost confidence in Beijing, to the extent that they had confidence to begin with. The ball is squarely in Beijing’s court to raise the level of confidence the world may have in the future regarding what it says versus what it actually does. There is no better proving ground on that score than the BRI.

      A combination of hubris, a bulldozer approach to getting things done and a complete lack of sensitivity had worked well for the Communist Party of China at home for 70 years, and Beijing apparently believed that doing the same would work well overseas. While some aspects of Beijing’s original approach ended up yielding some positive results, President Xi Jinping’s move toward “BRI lite” in 2018 had to be taken with a grain of salt. He deserves credit for acknowledging some of the initiative’s pitfalls, but the Chinese government’s pivot must ultimately be considered too little and too late.

      If it wanted to more fully acknowledge the error of its ways, it would have offered to renegotiate every BRI contract that was clearly skewed in its favor rather than waiting to be asked to do so, award debt forgiveness on a broader basis and stop in its tracks any project under construction that is inconsistent with best environmental practices. That is clearly not going to happen.

      *[Daniel Wagner is the author of “The Chinese Vortex: The Belt and Road Initiative and its Impact on the World.”]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More