Can BCAs play a constructive role in climate policy?
They are proposed as a constructive tool, as a way to allow states to take strong unilateral climate action without having to worry about large negative impacts to their energy-intensive trade-exposed firms, and without seeing the environmental results of their action evaporate as emissions are simply shifted to foreign competitors. Some also credit them with being able to force policy action, by threatening a loss of market access for states that don´t take climate change seriously.
Cosbey continues: But the problem is that they have such clear negative potential as well. The reactions to the EU´s unilateral aviation levy show us just how divisive a tool BCA´s can be, and how they can tear apart multilateral accord. If you don´t see any chance that the multilateral process will make progress on climate change, then I guess you don´t see that as a problem, but even then I guess you need to worry about spillover impacts in other international policy spheres. There is always the potential that they can be badly constructed. There are so many decision points in creating a BCA regime that have a material impact on its final result. For example, do you allow BCA to be used against a sector that is experiencing leakage, even where the foreign country is adequately addressing climate change at the overall national level? At every turn there´s the possibility that the BCA might have better or worse results. That makes it hard to say in general whether they are constructive or not, and it´s the key reason for our work in this area.
Are BCA's green protectionism?
A lot of what people call green protectionism is just successful industrial policy, which is something all states do. If what we mean is “policies that promote domestic industries, and which are dressed up as environmental policy even though environment is not the real objective," then I´d have to say no. The reality is more complex than that. There are always underlying objectives that seek to promote, or at least protect, domestic producers, and often they are hidden. But there are also legitimate environmental objectives tied into the bundle. The producers are at risk in the first place because you have introduced strong climate policies. And in the best of worlds you are just looking for ways to make those policies work so that your producers are no worse off than they would have been without the climate policy.
Is there a way BCA's can be designed to minimize potential damage?
This is the heart of the matter. Because the reality is that if you design BCAs badly you do get results that are protectionist - that have little environmental rationale but are good for your domestic firms. If you cover firms that are not really at risk of leakage, for example, or assess charges on goods from countries that have taken strong action against climate change, you are not achieving environmental objectives at all. The whole point of our exercise is to identify ways that BCA can be designed to avoid these outcomes, and to avoid needless damage to the development prospects of trading partners. BCA will always be a controversial tool, because to be effective it has to have negative economic impacts on trading partners. You can´t change the basic fact that a tiger is a tiger, but you can try to tame it.
Do you have any response to the European aviation emissions policy?
I understand the frustration that led to the EU aviation levy. The aviation industry has had decades to take some sort of action, since it isn´t covered under the existing treaties. And it has basically done as little as it thinks it can get away with. As a sector its performance is poor, even if there are individual carriers that want to take serious action.If you look at the projections, this is a sector that needs to be covered, where emissions are quickly becoming significant. So if you are the EU and you want to do your part, you bring the sector under the coverage of your premier policy tool for climate change — the emissions trading system. But, the argument goes, you can't just regulate the emissions that take place in EU airspace, or you´ll start to get serious competitive distortions. I see a lot of distortions resulting from the current scheme, and not all of them good for the EU carriers. The bottom line is that this is the kind of mess you get when you don't have multilateral agreement, and we need principled guidance on how to get policy right in such a context.