A Green Trade War?(World Affairs; ENVIRONMENT)(cutting emissions)

Byline: Stefan Theil

The U.S.'s coming around on climate change was supposed to be good news. Instead, it's trouble.

Be careful what you wish for. For years, much of the world has been bashing America for refusing to cooperate in the fight against climate change. Now that President Barack Obama has pledged American leadership in cutting greenhouse-gas emissions--and as a far-reaching package of green legislationabegins to wind its wayathrough the U.S. Congress--relief is giving way to worry. In recent weeks European, Indian and Chinese officials have warned that the result ofaAmerica's long-awaited change of mind mightanot be cooperation but conflict, and possibly the world's first green trade war.

That's because as Washington debatesahow to regulate emissions, a powerful coalition of energy-intensive industries, labor unions and Rust Belt state legislators is clamoring for protection from imports. They argue that the new cap-and-trade system envisioned by Obama and congressional leaders, which will requireamajor polluters to acquire permits for the right to emit CO2, will put them at a competitive disadvantage against competitors based in countries that don't have similar carbon-pricing schemes. In March Obama's energy secretary, Steven Chu, said the U.S. is prepared to use a border tax on imports as a weapon to force countries like China to limit their own emissions, triggeringaa warning by Su Wei, China's chief climate negotiator, that this would lead to retaliatory measures. India has since warnedathe West not to engage in "green protectionism."

So far, the threats have been limited to words, but that may soon change. Introduced in Congress on April 1, America's proposed scheme is loosely based onaEurope's, which givesahomegrown energy-intensive industries like steel, aluminum and cement generous free allowances of pollution permits, in effect grandfathering them into the new system. The president would have the authority to impose "border adjustments" only if U.S. companies were determined to be at a competitive disadvantage after a five-year trial period. But with the Americanadebate over climate change increasingly driven by worries over jobs and competitiveness, some form of protection seems increasingly likely. In Europe, politicians have called for EU trade sanctions against both China and the U.S. if they don't agree to cut emissions.

Because they already regulate emissions, the Europeans would likely be exempt from any U.S. carbon tariffs, which ...