Leveling the Carbon Playing Field: International Competition and US Climate Policy Design

by Trevor Houser | May 2008

As political momentum surrounding climate change builds in the US, policymakers are taking a fresh look at national climate policy and involvement in multilateral climate negotiations. As in years past, the potential economic impacts of any US effort to reduce greenhouse gas emissions remain a central focus in Washington policy debates. Of particular concern is the potential effect on carbon-intensive US manufacturing. Many American industries are already under pressure from foreign competition, particularly large emerging economies like China, India and Brazil that are not bound to reduce emissions under the current international climate framework. As Congress takes up domestic climate legislation and the Administration reengages in multilateral climate negotiations, policymakers are looking for ways to avoid putting American industry at a competitive disadvantage vis-à-vis countries without similar climate policy, lest a decline in industrial emissions at home is simply replaced by increased emissions abroad. While this would be best achieved through harmonized international climate policy, the differences between countries in level of economic development, obligations stemming from historic emissions, and responsibilities arising from future emissions mean harmonization is still a long way off. The question, then, in the design of domestic US climate policy today is how to level the playing field for carbon-intensive industries during a period of transition, where trading partners are moving at different speeds and adopting a variety of policies to reduce emissions…and how to do so in a way that doesn’t threaten the prospects of broader international agreement down the road. This book, a collaboration between the Peterson Institute for International Economics and the World Resources Institute, tackles these issues through an assessment of the economics and trade flows of key carbon-intensive industries. The authors evaluate a wide range of policy options in terms of their effectiveness in reducing emissions and addressing competitiveness issues and their impact on health of multilateral trade and climate negotiations.