Are Climate VIPs Welcome? The Rationale of Carbon Clubs

In December 2015 Paris will become this year's stage for a massive, annual diplomatic show: the United Nations Climate Summit. Also known as COP 21, this multilateral global negotiation on no less than the future of life on earth will send a powerful political signal--one way or the other--towards the feasibility of a low carbon society. While much hope still exists, it's no secret that this meeting will have a hard time proving that nearly 200 countries can effectively cooperate to cope with the magnitude of the climate change challenge. The difficulties and the slow pace of the negotiations, especially since 2009 during the Copenhagen Climate Summit (COP 15), have overshadowed some positive news. Without convincing measures to answer the climate question via multilateral means, one old idea keeps coming back to center stage: carbon clubs.

The rationale behind these clubs is simple: do more with less. The plan is that, if no broad international agreement can be reached, or if it is considered little ambitious, countries can manage and reduce greenhouse gas (GHG) emissions through smaller regional or plurilateral agreements among themselves. Essentially, a voluntary group would join efforts to cutting GHG in order to gain some benefits and share costs. The main expectation is to bring together those actors who are willing to have more ambitious targets in terms of greenhouse gas mitigation under a new legal arrangement, and who are ready to get started now. But how desirable is the promotion of "carbon VIPs"?

Carbon club enthusiasts defend the advantages of smaller groups of climate "doers" working together outside of the slow-moving UN sphere. This is primarily because these smaller clubs could excel at attracting, more effectively, the much needed private sector and stimulating linkages with existing emissions trading schemes, such as those in the European Union, in California, Ontario and Quebec.

So, if you are a carbon VIP, advantages would include price stability; liquidity; market access; increased low-carbon investment; and reputational benefits. The overarching goal is thus to reduce efforts needed and complexity demanded by the multilateral arena when promoting emissions reductions. In addition, these clubs could showcase solutions and function as window shops of successful practices attracting more and more members. In theory, there are reasons to support the establishment of these happy little groups. In practice, at least, two major challenges remain.

The first major polemic against carbon clubs derives from the fear of trade discrimination or "green protectionism". Put simply, if a group of countries implements low carbon policies, outsiders fear their economies could suffer from tariffs or other penalties for importing high carbon intensity goods into the carbon club. Indeed, green protectionism is an end run around the multilateral climate negotiations: if powerful economies get together in carbon clubs and begin establishing rules regarding carbon pricing, it will necessarily impact those who are not part of the club, perhaps negatively. Proponents would argue this method is the moral path and ultimately will reduce emissions. Detractors would call it nothing less than economic warfare.

While trade sanctions seem an attractive option in the absence of a global authority to regulate global commons, carbon clubs are, by definition, discriminatory. This fact, in particular, clashes with the WTO principle of "most-favored nation" (MFN), which means that countries cannot discriminate their trading partners. That is, if you offer a certain favor to a country (i.e. lower custom rates), you must be consistent and offer the same benefit to all other partners. Defenders, however, recall that this argument could be overcome. This is because, at the WTO, there are ways to justify certain discriminatory practices against trade partners. Under the article 20 of the General Agreement on Tariffs and Trade (GATT), exceptions are allowed if the protection of the environment or health is at stake. This debate is actually long and experts know that bringing a trade dispute at the WTO is more a political decision than a legal one.

In the climate context, accusations of green protectionism gained recent relevance as developed countries began to threaten imposing unilateral trade measures under a climate rationale. Two examples deserve to be recalled. First, the 2009 Waxman-Markey Bill in the US Congress was an attempt to establish climate legislation but the draft bill provoked suspicion among developing countries because of the presumed possibility of border carbon adjustments (BCA). BCAs are trade measures, tariffs for example, that could be applied to balance between the climate efforts done by one country when importing goods from less strict countries--just as described above. Despite the premature death of this bill, the polemic was inevitable and negatively affected the climate talks in Copenhagen (COP 15). A second example worth recalling was the European Union's plan to apply a carbon tax to offset emissions from commercial aviation. Since the bloc had already set emissions standards for intra-EU flights, it wanted international flights to comply as well. But, after powerful resistance from major developing countries including the US, the EU stepped back and exempted international airlines from its ETS regulation until 2016. However, the EU sustains that its regulation is compatible with international law.

Beyond fears related to economic competitiveness, another interrelated barrier complicates the case for carbon clubs. Suspicion, lack of legitimacy and transparency are frequent arguments from developing countries, which tend to be the main detractors of such clubs, arguing ultimately that they are unfair. The reality is that the Kyoto Protocol, in the view of many developing countries, already represents a big carbon club. Nevertheless, this club is severely ill (to not say dead), and several countries grieve that little has been done to save this agreement, born and raised in a multilateral family. China and India, for example, are usually the most vocal against the club idea as they condemn, beyond "green protectionism", attempts to undermine multilaterally agreed principles, notably the principle of "common but differentiated responsibility and respective capabilities" (CBDR-RC). But explaining the relative failure of the Kyoto Protocol is not hard. It suffices to ask: who, in real life, wants to be regulated at the global level? In this sense, the idea that some VIPs would get together to take strategic decisions that, in the end, would affect a large number of actors, who were not invited to the party, is an obvious alternative but a politically hard sell at the international level.

Finally, the fact that the debate over carbon clubs remains on the agenda suggests that they cannot be ignored. Among its plusses and minuses, one thing seems to be consensual among the carbon VIP defenders: the UN, for the moment, is not invited to the carbon club party.