Smoot Hawley in disguise?

Is the ETS/cap & trade going to end up being a version of Smoot Hawley?

I didn’t think this until recently when I was speaking to friend involved in mining. He explained that the ETS will have the effect of taxing exports and despite industry groups pointing this out at numerous meetings the government feels it can’t back down from the election commitment it made otherwise it would incur scorn from the Green groups.

Incredibly this push towards fewer emissions through the ETS could end up encouraging marginal mining to become competitive elsewhere in the world perversely having ZERO effect on global emissions.

Meanwhile the Congressional reps have passed a bill containing provisions to tax imports declared to be carbon intensive from countries deemed lax in taxing carbon emissions under the various provisions of the act.  Everyone’s antennae should be raised as this could be a cover for protectionism under the guise of eco-taxes and we end up with the big players beginning to tax each others exports and we end up in Dante’s  Inferno. The Congressional Reps are not exactly known as big free trade supporters even in boom times.

The recent US/China discussions in preparation for the Copenhagen round went as well as you’d expect. It didn’t. They were so wide apart it isn’t funny and unless this was just political posturing on their part the chances of reaching some sort of workable agreement in December is zero.

I guess our resolve to set an example to the rest of the world doesn’t appear to have been a resounding success at this meeting. I tried and tried but I couldn’t imagine either of the two sides at the bi-lateral meeting saying “ look we have to reach an agreement because Australia is putting forward an ETS”. Somehow I couldn’t see it happening☺ Next time someone says we need to do the ETS  in order to set an example we should ask them how Europe’s “ example” has been fairing in turning heads as they have been busily appearing to set movable targets for about a decade now. How’s that “ example been working out?

Cap and trade could really end up being Smoot Hawley in drag?

14 thoughts on “Smoot Hawley in disguise?

  1. Taxing exports is effectively reverse-protectionism, so naturally, they’d want to tax imports to… err… further protect the environment.

    “Incredibly this push towards fewer emissions through the ETS could end up encouraging marginal mining to become competitive elsewhere in the world perversely having ZERO effect on global emissions.”

    Worse than that… it will most likely result in higher emissions as it is done less efficiently, etc…

    “Meanwhile the Congressional reps have passed a bill containing provisions to tax imports declared to be carbon intensive from countries deemed lax in taxing carbon emissions under the various provisions of the act.”

    France was in early on this racket too, wanting to impose tariffs on countries that didn’t sign up to Kyoto. Of course, the real reasons were pretty obvious back then as well: plain old protectionism.

  2. Thanks Fleeced:

    I should have explained it better… I’m worried what the US congress is up to as that’s possibly Smoot Hawley right there. Knowing the Congress (the reps) they’ll try to use eco-taxes to manage trade.

    The Exports tax thing is essentially going to make us less competitive encourage marginal projects in places that aren’t as “environmentally sensitive” thereby raising emissions.

  3. The proposed ETS, as I understand it, will impact coal mining in two ways:-

    1. Mining requires energy.
    2. Mining often releases trapped underground gases into the atmosphere as a by-product of the mining process (fugitive emissions).

    Energy will be more expensive under an ETS and hence the energy input cost to mining will be more expensive. The release of trapped underground gases will require the purchase of ETS permits. A few mines do involve a lot of fugitive emissions and will become much less competitive as a result.

    The actual extraction of coal and the export of coal will not require ETS permits except as outlined above. The domestic burning of coal will however produce significant additional ETS liabilities. Essentially because the burning of coal produces a vast amount of emissions relative to the mining of coal.

    Coal that is exported will not attract any ETS penalty relative to coal that is sold domestically. So yes the ETS is a tax on exports. However no more so than income tax, payroll tax, mineral royalties, land tax, fuel taxes and almost all taxes other than the GST.

  4. p.s. Of course it goes without saying that an Australian ETS will reduce the domestic demand for coal due to the increases cost of using it in coal fired power stations. However most coal mined in Australia is not for the domestic market.

  5. Coal that is exported will not attract any ETS penalty relative to coal that is sold domestically.

    Not the inputs that go into it, Terje.

  6. I should have explained it better…

    Not at all – I wasn’t disagreeing with you.

    I’m worried what the US congress is up to as that’s possibly Smoot Hawley right there. Knowing the Congress (the reps) they’ll try to use eco-taxes to manage trade.

    I have no doubt.

    With further regards to Australian mining: China has a lot of coal, and yet they buy from us because it’s cheaper. Our coal miners are paid pretty good money – with our coal shipped a pretty long distance – and yet it’s still more efficient for China to buy our coal, than to mine locally (which, incidentally, results in numerous deaths).

    Making our coal mining more expensive will result in less efficient mining, more emissions, and more deaths. Supporters of an ETS are, quite frankly, guilty of manslaughter.

  7. Terje :

    The non petrol energy content of say mining ore etc and treating it will have the cost of the permit embedded in the price. I believe petrol is not part of it immediately.

    Miners are heavy users of energy so their costs rise.

    The more I think about it the more fucked up this whole thing sounds.

    (Argentina was once a wealthy country and it started to tax its exports which some people think was part of the reason it made its way down the league tables. I have no doubt that was one of the main contributors.)

    The thing that’s really screwed up is that this entire exercise could end up adding to emissions as the marginal producers begin to move in around the world to fill the void.

    I’m going to have to stop myself from abusing the next idiot that says we need to do an ETS to set an example to the rest of the world. (no I won’t).

    As I said we should really be worried about what the US does and if it begins to tax high carbon content goods. This could really start a trade war with China.

    ——-

    Fleeced.. No problem.

  8. Fleeced:

    Yes, all you need to do is to look at a picture of an Chinese iron ore pit or a coal pit.

    It is simply easier for us to rip out a seam or to load up flat ground onto trucks, than to dig out of a massive crater.

    Also, our resources are of a higher grade. Chinese coal would be dirtier unless treated with “white coal” technology – to which ours would be cheaper to process.

  9. No argument that the cost of energy inputs will flow through to make a more expensive export. However this is also true of non-energy taxes. For instance royalties, pay-roll tax and income tax are all embedded in the cost of our mining exports.

    I take it your concerns are primarily about how the US is going to use this to rationalise protectionism. Which is a fair enough consideration. Although in terms of protectionism I thought the republicans were historically the party of choice for protectionist measures against international trade.

  10. Terje:

    1. Those taxes are already built in and they’re exporting…
    So it’s no problem loading these guys with even more taxes?

    2. You wanna discuss the GOP from 1861 to 1902?

  11. I interpret the point of the post to be that carbon emissions may become a basis for disguised protectionism. I agree that’s possible, although the WTO rules supposedly prevent such things.

    There are already quite a few non-tariff trade barriers based on “ethical” considerations, particularly environmental standards and animal welfare. The EU is a much worse offender than the US, which the US uses as an excuse.

    Frankly, I am far more concerned about the massive economic effect of the ETS. Just about everyone will be paying a shitload more for energy. Exporters will be dependent on political benevolence to avoid a competitive disadvantage. It’s going to be a slow-moving train wreck.

  12. David:

    These numbnuts are imposing an ETS without the next best alternative (nuke) allowed as an alternative. There’s no such thing as clean coal and it’s years away before this technology is remotely feasible. It’s more than a slow moving train wreck 🙂 It’s the WTC stuck on repeat.

    The current bill before congress is supposed to apply a carbon tax to products that are carbon intensive.

    The latest out of China is that it is adamant that it will not agree to the Copenhagen orgy of idiocy.. (good for them).

    What happens when their goods hit US wharves?

  13. 1. Mine is a technical point. I agree that loading us up with more taxes is a problem. However it is as much a problem for domestic trade as for international trade.

    2. Not really. I just don’t believe that the Republicans are notably better on international trade than the Democrats. They are better in rhetoric terms on taxes and regulation.

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