Call it the rise of the carbon tariff. It turns out the "decarbonizing" of the atmosphere is seen by many south of the border as a useful lever in saving U.S. manufacturing jobs and reversing the country's unsustainable trade deficit.

Canada, and British Columbia, better be paying close attention.

It's working out something like this.

Consider it a near certainty that the next U.S. president, regardless of party stripe, will be presented in 2009 with a law from Congress setting up a national cap-and-trade system in carbon emissions by 2012. That law will seek to control carbon emissions and establish a massive, U.S. -based carbon-credit trading market.

Yes, we've been taught to think the Americans are the planet's laggards on Kyoto; it turns out that powerful U.S. legislators, lead by Senator Joseph Lieberman, have spent years quietly scoping out how to position themselves in a world where carbon reduction is a major economic reality. Not surprisingly, what they are coming up with stands to be very much to the American advantage.

Here's the gist of what they've been up to in Congress, in a remarkable bit of bipartisan togetherness. Leading U.S. legislators have put together the blueprint for a law that would make carbon usage a key lever in shaping of the United State's trading regime, establishing what many think will be a de facto carbon tariff.

It's unclear what the final law will look like in its particulars. But the themes -- contained in various draft bills now circulating in Washington -- are clear. The U.S is contemplating setting up its own regulatory review of the CO2 footprints of both US. companies and those from other countries, including Canada. It is a system that would seek to cover most commodities and manufactured goods made with fossil fuels.

Those who don't make Washington's view of an acceptable carbon footprint would need to buy carbon credits. Here's the rub: The vast majority of those carbon credits would have to be purchased from the U.S. because the Americans' plan for a carbon trading system would make their own carbon credits the gold standard.

That means imported products, to be able to enter the U.S. market, must have American-made carbon credits to offset carbon emissions. In theory, this might mean the U.S. importer must buy those carbon credits. But in the real-life world of trade, it's the exporters who are going to have to find ways of amassing U.S. carbon credits to hold onto their share of the world's biggest market. Hear a sucking sound? It's the billions from foreign economies going straight into the U.S. to pay for those credits.

Now, the primary target in all this would be China. It has been enjoying record trade surpluses with the U.S. essentially because the world's No. 1 economy is addicted to cheap, Chinese-manufactured goods. Why are they so cheap? One reason is inexpensive labour. Another is that China's industrial and energy base is old and largely powered by coal, which means products from China wield a large carbon footprint.

That's where the carbon tariff would come in. To get goods into the U.S., foreign exporters will have to find carbon offsets, or credits. But the laws require, at least for many years, that those carbon credits be obtained from inside the U.S., where Washington will have awarded its own industries generous quotas of carbon credits.

If it plays out like this, the U.S. carbon trading system would essentially be an incentive to slow, perhaps reverse, the leakage of U.S. manufacturing jobs offshore and save, perhaps even create, more jobs.

How much is at stake here is anyone's guess. But CIBC World Markets' Jeff Rubin and Benjamin Tal estimated last month a carbon tariff on China alone could net $55 billion a year. Who pays? "Of course, it's not just Chinese exporters who will have to pay," CIBC predicts.

What does China have to do with Canada? Lots, I'm afraid. While Canada may not be as big as China, and we have a less turbulent relationship with the U.S., we too have industries that will be considered to be carbon-heavy. Oilsands, forestry, pine beetle-based fuel and manufacturing -- all would be at risk of needing to obtain American carbon credits.

Given our friendly ties with the U.S., we may fare better than China. But a major shift is in the wind.

To use an old Clintonite phrase, climate change isn't just about the environment, stupid; it's about reshaping global trade. We better get the A-team of trade negotiators ready. This could make the softwood lumber negotiations seem like child's play.  Source

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