KEY POINTS:
The European Union aims to become the world's leader in the fight against global warming and climate change.
But in doing so, it may trigger a green trade war of retaliation and litigation from China, India and other leading carbon polluters in lower-cost Asian economies that refuse to follow the new environmental and energy use standards set by Europe and perhaps soon by the United States as well.
If this were to happen, it would complicate the plans of Australia and New Zealand to make themselves honest brokers between developed and developing countries in the contentious international negotiations on climate change.
It would also undermine the multilateral trading system policed by the World Trade Organisation (WTO) and add momentum to protectionist pressures that already pose a significant challenge to the open international trade regime that has helped bring prosperity to the Asia-Pacific region.
The stage was set last month for a fraught round of negotiations over the next few years on pricing energy and changing production processes in major industries around the world. The European Commission, the EU's executive arm, presented its detailed proposals for cutting greenhouse gas emissions in Europe.
These established individual country targets for the 27 member states to reduce Europe-wide emissions by 20 per cent by 2020 from 1990 levels and ensure that by then 20 per cent of energy comes from renewable sources, such as wind, solar and biofuels, up from 8.5 per cent today. If ratified by the European Parliament and the Council of Ministers, a key enforcement mechanism will be the EU's beefed up emissions trading scheme. It will be expanded to cover almost half the European economy.
Rather than cut emissions themselves, Governments or companies will have the option to invest in reductions outside the EU, receiving credits for about a quarter of the total cut. But from 2013, energy-intensive industries such as steel-making, cement, paper, glass, chemicals and aluminium producers will have to pay for permits to produce carbon dioxide, the main greenhouse gas warming the planet.
To ensure these industries do not shift production to Asia or other regions with less stringent regulations, the EC wants to oblige importers to pay the same greenhouse-gas emission charges for non-European goods as domestic producers, in effect imposing hefty green tariffs on dirty imports.
EC President Jose Manuel Barroso says Europe wants industry to stay in Europe, not export its jobs to other parts of the world. The US appears to be moving toward a similar system to pricing, capping and trading carbon emissions. But China, India and other big emerging Asian economies are extremely reluctant to put this kind mandatory restriction on their industries, fearing it would drive up costs and give competing economies an edge in foreign markets. They are likely to retaliate against environmental protection measures imposed by the West or challenge them in the WTO.
This would strain the organisation's dispute-settling mechanisms and create divisions along North-South lines, warns Ujal Singh Bhatia, India ambassador to the WTO.
Of course, the EC proposals, and the way they are to be phased in, are part of a bigger game plan. Europe hopes the United Nations climate-change negotiations, launched in Bali in December, will result in a new global agreement from 2012 on limiting greenhouse gas emissions that covers all major emitters including China, India and other developing countries not covered by the current Kyoto Protocol, which expires in four years.
The threat to punish economies that refuse to join any new accord may induce them to sign on. But it may also backfire. WTO head Pascal Lamy told the Bali meeting only a multilateral deal on climate change that included all major polluters could set the right environmental context for global trade.
It would then be incumbent upon the trading system to respond to such environmental rules as soon as they were crafted, he said. The alternative outcome would be a real spaghetti bowl of unilateral measures that would achieve neither trade nor environmental goals.
* Michael Richardson, a former Asia editor of the International Herald Tribune, is an energy and security specialist at the Institute of South East Asian Studies in Singapore.
