NEW YORK, March 27 /PRNewswire-FirstCall/ - CIBC (CM: TSX; NYSE) -
Imposing a carbon tax on Chinese imports may be the only way developed
nations will be able to achieve real cuts in global greenhouse gases, finds
a new report from CIBC World Markets.
The research report notes that while governments in the U.S. and Europe
are taking painful steps to cut greenhouse gases, carbon emissions from
developing nations - in particular China - have skyrocketed in recent
years. Since 2000, total emissions have climbed by more than 6,000 million
metric tonnes (mmt) - with 90 per cent of that coming from China and other
developing nations. China is now the single largest carbon emitter country
in the world, producing more than 21 per cent of the global total.
"As OECD countries begin to tax their own economies by charging growing
fees on CO2 emissions, their tolerance of the carbon practices of its
trading partners will diminish rapidly," says Jeff Rubin, Chief Economist
and Chief Strategist, CIBC World Markets. "Particularly when the painful
cuts made by North America, Western Europe and a handful of other OECD
economies are dwarfed by the emission trail spewing from China and the rest
of the developing world.
"Other than moral suasion, which is likely to fall on deaf ears, the
OECD's only leverage is through trade access. The response is likely to
involve a carbon tariff - an equalizing force that will tax the implicit
subsidies on the carbon content of imports that come from carbon
The report found that efforts to gradually reduce carbon emissions in
the U.S. by just 10 per cent through a cap and trade system will shave an
estimated 0.6 percentage points off real GDP growth annually for the next
five years - with similar costs expected for other OECD nations.
Mr. Rubin notes that these decarbonization efforts will only be
effective in reducing greenhouse gases if done in concert with the
developing world. Otherwise it simply adds costs to consumers, makes
domestic industry less competitive and will increase overall global
emissions as more and more production is shifted to unregulated
CIBC World Markets calculates that China's export-related emissions
were approximately 1,700 mmt in 2007. Outside of the entire U.S. economy,
China's export sector is the world's largest carbon emitter.
In the last seven years, China's overall emissions have grown by close
to 120 per cent. Its average annual increase is equal to the total
greenhouse gas emissions of Canada or the United Kingdom. Its cumulative
increase in emissions over the past seven years is equal to the total
current level of emissions from the Japanese, Indian, Spanish and Canadian
The reasons for this dramatic jump are rooted in the sheer pace of
economic growth in the country and the absence of enforceable and
meaningful environmental regulations. But the more vital factor has been
the emissions intensity of the Chinese economy.
"Energy use in the manufacturing-intensive Chinese economy as a share
of GDP is four times larger than in the largely services-based U.S.
economy," says Mr. Rubin. "To make matters worse, China is not particularly
carbon efficient. It produces a third more CO(2) emissions per unit of
energy than does the U.S. economy, and double that of Canada. Combine the
energy intensity of the Chinese economy with the poor carbon efficiency of
its energy use and you have a powerful cocktail for exploding emissions
By slapping a $45 per tonne cost onto CO(2) emissions, a tariff would
raise roughly $55 billion a year from Chinese exports to the U.S. "Of
course, it's not just Chinese exporters who will have to pay," adds Mr.
Rubin. "At least initially, before other carbon compliant sourcing can be
found, it will be consumers who will have to bear the bulk of the tariff
burden in higher import prices. Based on China's share of U.S. imports, a
$45 per tonne tariff would raise U.S. consumer price inflation by more than
0.6 percentage points.
"At some point, however, the inflationary impact might be mitigated as
either domestic production replaces some Chinese imports or sourcing is
shifted to a less egregious emitter than China."
The report notes that given the overall energy inefficiency of the
Chinese economy, a carbon tariff, coupled with triple digit oil prices,
suddenly redefines the meaning of Chinese competitiveness. For many
industries, what will count is how energy efficient they are, and how
carbon efficient they are in their use of energy. On both counts, China and
the rest of the developing world are hugely disadvantaged. As a result,
China's wage advantage would be lost for many energy-intensive industries
who who will then look to return home to the U.S.
Mr. Rubin expects Chinese exporters of chemical products, with their
astronomical energy intensity factor, will be the first to see their
businesses migrating back. In fact, chemical exports from China to the U.S.
are already slowing down notably, with shipments in the past two years
rising by only half the pace seen in the first half of the decade.
Non-metallic mineral products (cement, glass, lime, etc), with energy
intensity 130 per cent higher than the Chinese industrial average, along
with printing, primary metal manufacturing and machinery industries are
other candidates for such realignment.
"With OECD's carbon tolerance diminishing with every tonne of CO(2)
spread into the atmosphere by non-OECD countries, environmentalism will
soon become a significant barrier to trade," concludes Mr. Rubin. "A carbon
tariff imposed by the U.S. on emissions embodied in Chinese exports would
not only abolish the implicit subsidies on the carbon content currently
enjoyed by Chinese exports, but it would be large enough to start reversing
current trade and offshoring patterns."
The CIBC World Markets report is available at
CIBC World Markets is the wholesale and corporate banking arm of CIBC,
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SOURCE CIBC World Markets