France fires a warning shot in the carbon trade wars

France blocked a deal that would have brought millions of tons of natural gas from Texas to the EU.
France blocked a deal that would have brought millions of tons of natural gas from Texas to the EU.
Image: The Story of Plastic
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This September, the French government stepped in to block a $7 billion, 20-year agreement that would have sent millions of tons of liquefied natural gas from the US to Europe, shrinking a massive market for the flailing American oil and gas industry.

As far as international struggles go, it remains a decorous disagreement between allies. Yet it highlights the fault lines emerging as the US formally leaves the Paris climate pact on Nov. 4—and the realpolitik, a more bare-knuckled approach to climate politics, that’s likely to follow.

The move by France was unusual. The proposed deal would have allowed a planned liquefied natural gas (LNG) facility in Texas, capable of shipping 11 million tons each year, to deliver LNG to the French trading firm Engie, which is partially owned by the French government. But France argues the Trump administration’s abandonment of stricter methane emission regulations from the Obama era threatens LNG’s status as a cleaner fuel, according to a French news site (and confirmed by Politico). France reportedly is concerned the natural gas shipped into Europe will be too carbon-intensive for its own climate goals.

Daphne Magnuson, a spokesperson for the Center for Liquid Natural Gas, said “the larger issue is the perception that US natural gas is somehow less clean than other sources that France relies on.” In a letter to French president Emmanuel Macron, more than two dozen Republican members of the US House of Representatives cited studies showing methane emissions from Russian natural gas imports were higher than those from the US. “We ask that your government please re-examine the facts and reconsider this ill-informed decision, which we believe is detrimental to our joint energy security goals and efforts to reduce global emissions,” the letter stated.

Others in the Trump administration have suggested efforts to discriminate against high-carbon fuels will “go away,” said US energy secretary Dan Brouillette during a conference last month after France’s move to block the deal. “No, I don’t have any concern about these short-term announcements.”

But those political winds are unlikely to change. Carbon taxes, or border adjustments, are the next frontier of global trade—and they will prove particularly painful for US producers of carbon-intensive commodities. France’s escalating pressure on US oil and gas exporters is meant to send a message: You can pull out of the Paris climate accords, but it’s going to cost you.

The Paris agreement (pdf) is a voluntary climate accord signed by every nation on Earth. The 197 signatories have agreed to limit global temperature increases to 2 degrees Celsius above preindustrial levels and strive for a cap of 1.5 degrees over the century, and 91% have formal plans to do so. But in 2017, the Trump administration announced its intention to pull the US out after a mandatory waiting period, a move will take effect on Nov. 4.

For countries with climate targets, the US’s absence in the Paris agreement makes the country a target for punishing tariffs. Fifteen years ago, no countries were committed to eliminating their net emissions. Today, more than 20 countries have net-zero carbon targets, including the European Union, Japan, and China, the world’s largest greenhouse gas emitter. More than 120 more are studying them.

That means proposals like carbon border taxes are set to transform the rules of global trade. China and the EU are already contemplating them. A draft carbon border adjustment mechanism in the EU’s Green Deal would be a de facto border tax (pdf). Importers of steel, cement, and aluminum would need to buy allowances of CO emissions in the EU (now priced around €25 per metric ton) starting in 2021. And California’s low-carbon fuel standard has already put a price on carbon in the US. The car-loving state, the world’s fifth-largest economy, imposes tariffs on the carbon content of fuels, allowing it to award credits, or impose credit deficits, on fuel suppliers.

These levies are essential to level the playing field for any country planning to impose emission limits on domestic industries; they remove the advantage of foreign competitors unburdened by pollution restrictions. Since global commodity markets typically operate on thin margins, even small price differences can create big losers.

The movement behind this effort will only gather steam—especially as global accountability mechanisms become more common.

Satellites capable of monitoring global greenhouse gas emissions, even within small regions, are already in orbit. More precise ones are getting ready to launch. And on Oct. 14, the EU announced on an  “international methane observatory” to track countries’ methane emissions as it tries to become the “first climate-neutral continent” by 2050.

As the world’s largest energy importer and economic bloc, the EU plans to “encourage international action” to meet its standards. With about 50 different schemes pricing carbon around the world, and more to come, the US will find it increasingly expensive to go it alone on climate.