Taxing time for mainland exports?

Source: The Standard
Date of issue: Wednesday, October 24, 2007

China, says the British Tyndall Centre for Climate Change Research in a recent report, is now believed to be the world's largest emitter of carbon dioxide (CO2), citing figures that the country overtook the United States in 2006, and that its emissions now exceed America's by 8 percent.
Whether last year or next, this was bound to happen sooner or later; given China's continuing economic growth, sooner rather than later was likely.
This development gives some credibility to the belief that mandatory carbon emission caps and reductions such as those in the Kyoto Protocol will not be effective without the involvement of developing countries and in particular China.
The Tyndall Centre goes on to say, however, that "in 2004 - the most recent year in which comprehensive data are available - net exports from China accounted for 23 percent of its total CO2 emissions."
So, if a quarter of China's emissions are the result of manufacturing goods for consumption in the developed world, should they not really be counted in the consuming countries' totals rather than China's? Without demand for the exports, China would not have produced them.
Another British think-tank, the New Economics Foundation, put it this way in a report earlier this month: "China has become the `environmental laundry' for the Western world. China is increasingly blamed for its levels of pollution in general, and its rising greenhouse gas emissions in particular. But it is demand from countries like the UK which leads to smoke from Chinese factories and power plants entering the atmosphere. Because China's energy mix is more fossil-fuel intensive than those of Europe, Japan or the USA, it also means that outsourcing to China creates more greenhouse gas emissions for each product made."
So, America, Britain and Japan can reduce their emissions by outsourcing production to China, which helps these countries' emissions figures but actually raises total emissions worldwide.
However, before pro-China partisans crack a smile at yet another indication that the West's upbraiding of China for everything from currency manipulation to pollution is misguided, everyone should realize that these figures just give the West yet another protectionist argument for restricting, or at least taxing, Chinese imports, an argument which this time would have legitimate economics behind it.
Pollution and carbon emissions are what economists call an "externality." In this case, the manufacturing is pushing the cost of the result of its actions (the cost of dealing with global warming) on to society as a whole. The manufacturer, in other words, is not covering the total cost of production, making production seem less costly than it really is.
If China's competitiveness comes from higher efficiency, lower costs of labour and other inputs, then it has a true competitive advantage. If, however, its lower costs derive in part from, or are accompanied by, externalities, and worse, externalities which affect the entire world rather than just the domestic population, then importing countries have a good reason to raise the cost of these goods via tariffs or quotas to reflect the costs imposed on the world through these carbon emissions.
The result of these reports, therefore, is less likely to be increased stringency in Western carbon caps to take account of outsourced manufacturing than calls for a carbon tax on imports. Unfortunately for the Chinese, it could be argued that importing countries have an obligation, just as they have an obligation to ensure imported Chinese toys and other products are safe, to impose such tariffs to remove the carbon benefit in outsourcing production.
The only solution, just as in the case of lead and antifreeze- tainted toys and toothpaste, is for China to fix the problem at source.
Kyoto Protocols or not, China will need to reduce, in the words of the Tyndall Centre, "the relatively high level of carbon intensity within the Chinese economy." China's use of fossil fuels is highly inefficient, an inefficiency which at US$90 per barrel of oil, China can ill afford in any case.
China should do something about this anyway, but, as with product safety concerns, might well not unless threatened with protectionist measures from importing countries.