(Aug. 31, 2010) Implementing tariffs to discriminate against environmentally subsidized imports is a horrible—and very 1950s—idea.

When we decided that it was unhealthy to sell toys in Canada that were covered with leaded paint, did we: (1) prohibit the manufacture of leaded paint in Canada and (2) put a tariff on leaded paint and leaded painted toy imports? Certainly not. Everyone involved agreed that would have been a stupid idea. So why are we seriously contemplating such a stupid idea to address the damage of GHGs and other pollutants?

When we wanted to get the lead out of gasoline and paint, PCBs out of electricity components, DDT out of pesticides, sulphur levels down in diesel, or CFCs out of refrigerants, we did not regulate domestic manufacturers and put tariffs on imports, as proposed in Jeff Rubin’s article.

In EVERY case of successful environmental management outcomes we did the same thing.

We first regulated the pollution factor and/or content for pollution precursor products, at the point of sale—not the point of manufacture or import. To the extent that we prohibited the manufacture of polluting products or pollution precursors in Canada, we only did so after North American product standards created significant demand for more environmentally benign versions of those products.

Efficient and effective regulation will not involve any tariffs. Effective regulations will say that every distributor of petroleum products in Canada has to report global supply chain fossil carbon consumption and comply with fossil carbon content limits (on a Canadian sales portfolio basis) that decline over time.

We only have to put supply chain carbon/GHG reporting and content limits in place for nine basic commodities to cover 85% of North America’s global supply chain emissions. 80% of the least cost measures industry will apply to comply with the reduction obligation will also result in local air pollution reductions.

Why are we talking tariffs—which will be the start of trade wars—when we clearly know how to get this right and also know that tariffs are inefficient? Regulate products sold, and not manufacturing techniques. Leave it to the market to come up with the manufacturing techniques required to comply with the product standards.

Product standards treat all products sold equally, regardless where the products are manufactured.

Learning from past experience

I should note that every time we have regulated products to achieve environmental protection goals, (1) Canada has regulated domestic production as well, but (2) the US has exempted exports. Consistent with this history, the US Congress has even included an exemption from proposed US GHG caps for all GHG sources that are producing exported products in every climate change bill that has passed 2nd reading on the House or Senate since January 2006.

We can afford to regulate what is manufactured here only if/after our product standard regulations have created a large enough demand for environmentally superior products, and only if the US removes the export exemption from its existing and proposed regulations.

Every time Canada has regulated both sales and production, the US has subsidized US producers of the regulated products by allowing them to continue to produce and dump polluted/polluting products on developing world markets. A system of tariffs just makes the return on dumping worse.

The ultra low sulphur diesel case

For example, in 2006 it became illegal to sell diesel fuel that was greater than 15 parts per million (ppm) sulphur through the retail distribution networks in both Canada and the US. In Canada, it became illegal to manufacture high sulphur diesel in the same year. But the US did not completely prohibit the production of high sulphur diesel.

Up until 2006, the US was a net importer of diesel fuel. After 2006 the US became a net exporter of diesel fuel. 100% of the US’s incremental diesel exports are high sulphur diesel, and most of these exports are going to developing nations in South America or to developed nation refineries where the high sulphur diesel is blended with their low sulphur production before the finished blend is exported to developing nations.

The US refinery dumping of high sulphur diesel on the developing world market mirrors the US dumping of leaded gasoline starting in 1990, after the completion of the US domestic leaded gasoline phase out.

Most of the gasoline export increase you see pictured below was in the form of leaded fuel from 1980 through roughly 1995. Congress eventually approved regulations prohibiting the manufacture of leaded gasoline in the US in 1996. Having established new export market share with leaded fuel exports, the US refineries maintained and continued to grow those export market shares by substituting unleaded for leaded fuel.

Western Climate Initiative

Note, as well, that the California GHG standard for electricity and Low Carbon Fuel Standard—the critical measures the states/provinces participating in the Western Climate Initiative have agreed to—effectively exempt product that is manufactured in California/the WCI states/provinces, but is exported, from the GHG limits.

Canada unity at risk

Please also note that if/when Canada/the provinces agree to a domestic “cap and trade” set of rules (where “cap and trade” regulates GHGs at the point of production, not the point of sale) and levels the playing field with tariffs on imports, if Canada replicates the US historical and proposed GHG bill models, all Canadian production destined for export markets will be exempt from Canada’s GHG caps.

This has major implications, including but not restricted to:

• many of the larger GHG sources in western Canada will be exempt from the national GHG cap and trade regulations, but

• most of the cost of import tariffs will be paid by consumers living in Ontario and Quebec.

I do not believe that any such outcome will prove acceptable to the residents of Ontario and Quebec.

Aldyen Donnelly, August 31 2010