Leading Off: Trade Rules & The Danger To Just Transition

Here’s a reasonable argument to consider: the global trading regime, built over the past century through various so-called “free trade” agreements, has played a significant role in exacerbating the climate crisis by encouraging hyper-growth, lowering wage standards and reducing national environmental conditions.

Even if the above is debatable to some, it’s undeniable that there is a grave threat that the trading regime—overseen most prominently by the World Trade Organization—will undermine national governments abilities to press forward towards meeting net-zero targets and, to the subject we address here as our mission, scuttle even modest attempts at ensuring a worker- and community-centric Just Transition.

Consider: let’s say the global economic giant Freedonia doesn’t want to wait for its counterparts to get its act together to move ahead with concrete plans on Just Transition. So, Freedonia passes legislation that favors domestic manufacturing of electric vehicles, and related components. Country B, C and D stomp their feet, whine and complain, and rush to the WTO to file an unfair trade case against Freedonia, demanding that Freedonia remove any favoring terms for its domestic-based manufacturing and/or be sanctioned.

This isn’t just a hypothetical. Let’s turn to real life.

In the U.S., the Inflation Reduction Act is set to provide billions of dollars for, essentially, massive government engineering of domestic climate change industries—that’s a good thing. If the consensus is that this is a “war” to keep the planet livable, then, government intervention, across the globe, is vital.

You can find in the Inflation Reduction Act:

• Tax credits for electric vehicles to the tune of $4,000 tax for consumers to use to purchase used electric vehicles, and up to $7,500 for new electric vehicles made in the U.S. [Note: the stillborn first generation of the bill (then, called “Build Back Better”) provided additional tax breaks for vehicles assembled in unionized U.S. factories—a provision that did not make it into the Inflation Reduction Act.]
• A sizable $60 billion pot of money to ramp up clean energy manufacturing of solar panels, wind turbines, and other technologies in the U.S.
• Another pot of $27 billion for a new Greenhouse Gas Reduction Fund to advance the deployment of low-carbon technologies by handing out low-cost financing for clean energy infrastructure projects.

 

All of this is a significant step for the U.S. but still quite inadequate to the task at hand.

So, what has happened since the passage of the Inflation Reduction Act? A variety of countries and the European Union leadership have their knickers in a twist, and are throwing a fit. The common theme: the Inflation Reduction Act subsidies and, thus, the favoring of domestic manufacturing are direct violations of “free trade” laws.

From the Financial Times (FT subscription required):

Brussels is pushing for Washington to rethink “discriminatory” provisions in its new flagship green legislation, as alarm mounts among EU officials that the rules could prompt European companies to move production to the US….

…EU officials are concerned that the policies in the Inflation Reduction Act discriminate unfairly against electric vehicles produced outside of the US, amounting to a breach of WTO rules. The act includes tax credits for electric vehicles made in North America as well as provisions seeking to boost the US battery supply chain and its renewable power sector.

South Korea is whinging as well:

The Biden administration’s abrupt withdrawal of subsidies for South Korean electric vehicles is threatening to undermine trust in the US, Seoul’s trade minister has warned, as trade tensions grow between the allies.

Seoul is furious that EVs manufactured by Hyundai in South Korea will be excluded from generous consumer tax credits contained in the Inflation Reduction Act, a landmark US climate, tax and spending law.

Finally, France has a proposal:

Emmanuel Macron called for a “Buy European Act” on Wednesday to protect carmakers on the Continent in the face of competition from China and in response to the United States’ own controversial scheme to incentivize domestic production.

“We need a Buy European Act like the Americans, we need to reserve [our subsidies] for our European manufacturers,” Macron said. “You have China that is protecting its industry, the U.S. that is protecting its industry and Europe that is an open house.”

There is a bit of hypocrisy in the hand-wringing. Lori Wallach, one of the best informed trade experts on the planet who recently formed Rethink Trade, wrote in an email: “The countries whining the most have always busted or limbo’d under the rules – China and Korea with both direct subsidies and currency devaluations and EU with subsidies a la Airbus for decades”.

In fact, China engages in country-wide, regular, centrally-managed industrial policy—if one thinks climate-change efforts via industrial policy is a good thing, that isn’t a criticism in the big picture. But, it must be noted that a significant piece of China’s economic policy rests on offering its people up to the global supply chain system as low-wage to slave-wage labor (see: the enslavement of Uyghurs, ethnic Kazakhs, and other Muslim minorities in Xinjiang)

MAIN POINT:

We take a neutral stance when it comes to national interest—our lens is simple: how does any proposal support workers in the process of Just Transition?

And this is the fundamental question: what is a country to do when there is no uniform international agreement on how to confront the economic upheavals due to de-carbonization and, certainly, no agreed-upon standard on a “high bar” Just Transition for workers?

As we point out in our Guiding Philosophy, Just Transition “should be transformative, not just reform the current economic system” and offer a chance to “reconsider the fundamental concepts of the planet’s economy.”

The so-called “free trade” regime is precisely the kind of concept that must be revisited. Current trade agreements should be rubbished, or severely renegotiated, in any instance where such a deal obstructs or attempts to nullify decarbonization steps taken by a country, or a coalition of governments.

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Spotlight: A Just Transition Road Map For Unions

A couple of weeks ago, “A trade union guide of practice for a Just Transition” saw the light of day. We will refer to the Guide frequently because it lays out a very specific roadmap to build Just Transition campaigns. We recommend everyone read it. Disclosure: yes, it was written by yours truly but there are no royalties for every copy made so no personal financial gain to rave about it!

For this issue, as an appetizer, we just want to flag one section: “Workers’ representatives: building a powerful coalition: unions, workers’ representatives, allies, and communities.” It is inconceivable that workers, and their unions, will win a “high bar” Just Transition in the absence of a broad alliance. Such alliances are much talked about—and will be examined here regularly—but are still quite shaky, at best, in most places.

The Guide offers this:

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Ideas: Electric Bill Charges–A Contributor to Just Transition Funding?

Here is the truth: everyone will need to contribute *something* to Just Transition.

Every energy consumer in the country—past, present and future—has benefited from the output of fossil fuel industry workers. Gasoline, for example, is highly subsidized in the U.S. compared to fuel costs in Europe partly because fossil fuel companies have been able to externalize onto society the costs of exploration, pollution, and waste disposal.

Thus, though the lion’s share of the non-government funding for Just Transition should come from corporate coffers, society, as a whole, should contribute to upgrading our society – using the principle of progressive taxation to set the rates.

In fact, partly funding Just Transition via a regular “wires charge” would fit easily with current practice.

What is a “wires charge”? A tiny, relatively insignificant, amount that would be part of a monthly (or quarterly, depending on the billing cycle) bill. “Tiny” is certainly a relative concept but, in general, such charges are so small that, on a regular billing basis, consumers are unaware of the charges.

In the United States, virtually every power consumer pays small, relatively insignificant charges for a myriad of reasons that are tucked away in monthly bills. A few examples:

1. Pacific Power collects from its Oregon customers an “Energy Conservation Charge” and a “Low Income Assistance”;
2. Georgia Power imposes a monthly “Environmental Compliance Cost” and “Nuclear Construction Cost Recovery”;
3. Detroit, Michigan-based DTE Energy has a “LIEAF Factor” charge (a Low-Income Energy Assistance Fund charge) and a “Nuclear Surcharge”; and
4. The Los Angeles Department of Water and Power bill includes a variety of tiny charges including one for “Water Infrastructure” and “Low-Income Subsidy”.

Take the U.S: In 2019, there were more than 135 million household rate payers in the U.S., who paid an average monthly bill of
$115 in 2019. Every rate payer could be assessed a base monthly charge of $5 for every $100 bill, or fraction thereof, for the first five years of a national Just Transition Fund, and then a declining sum every five years capped at $1 at the end of 20 years.

That kind of revenue could be electronically deposited, in full, directly to a national Just Transition fund, in each country, or as part of the Global Just Transition For All fund proposed here in our newsletter’s debut issue.  A one-time initial Just Transition “launch” charge of $200 and special annual higher charges should be levied on households with reported incomes of over $250,000 per year – data that can be provided securely
from the U.S. Internal Revenue Service.

Any wires charge scheme should provide for a low-income reduced rate.

In addition, industrial and commercial customers, ranging from large facilities (an Amazon warehouse, for example) to a small business in a strip mall. A wires charge for each of those customers should be assessed.

 

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Opinion: How Can A Just Transition Be Shaped Under The Current Conditions?

By Frederik Moch

Russia’s invasion of Ukraine is a setback for a Just Transition in Germany and Europe. High energy prices, shortages of essential goods, rising inflation and the soaring cost of living increase social inequality. Furthermore, job losses are at stake. Many companies are incapable of paying the increased production costs, especially those with a high energy consumption. At the same this means companies have less money to invest for greening their operations and production processes. Moreover, the German coal-fired power plants must run more intensively and are partially ramped up again due to the gas shortage.

Nonetheless, it is urgently needed to set the foundations for a Just Transition. This implies a different political approach towards greening the economy. The effects on jobs, distribution and regional economic structures must be considered just as much as the reduction of carbon emissions. Climate policy entails much more than environmental policies. Especially in the present time it becomes evident how much social and ecological aspects have to be seen together. The guiding principle of an ambitious climate policy should therefore be a Just Transition in which no one is left behind. For the trade unions there are five key aspects how to shape a Just Transition progressively under the current circumstances:

1. Government support for private households, companies, and jobs

The state must provide significant fiscal support to prevent a social disaster. Both private households and companies must be protected to avoid job losses and a rise in social inequality. An energy price cap is urgently needed.

2. Energy security and a boost for the renewables

A secure energy supply for private, commercial, and industrial consumer groups must be ensured as a central aspect of public services of general interest. A massive expansion of the renewable energies is the most important measure for minimizing Germany’s dependence on fossil fuels and achieving the climate targets.

3. Just Transition, just finance

For a successful transition massive investments are required. They are especially needed for climate-friendly infrastructures, innovative technologies, buildings, and mobility. Climate neutrality will not be achieved with today’s attitude toward debt breaks. In addition, the costs of the current crisis are enormous. The financing has to be socially just. High incomes, assets and inheritance need to be taxed more heavily. Capital must be more visible with respect to financing to ensure the burden is shared fairly during the transition. In addition, an excess profits tax makes sense to absorb the huge crisis-related profits of some companies.

4. A Just Transition framework is needed

Furthermore, a Just Transition has to be actively shaped by governments in cooperation with trade unions and employers. Leaving the transition to the market would increase the risk of social and environmental dumping. Instead, there has to be a political and sustainable framework to bring climate protection, decent work and sustainable prosperity together. Such a strategy has to anticipate and proactively balance social, economic and ecological effects.

5. Workers are key to the transition

Workers are at the very core of the transition. Due to their activities on the ground, they have intricate knowledge of the sectors in question as well as being a trusted partner in industrial relations and bargaining processes. Studies have shown that companies with co-determination are more sustainable and are doing more to avoid greenhouse gas emissions. Workers know their company best and have the power and knowledge for innovation. In addition, ongoing professional development as well as increased training and further education all empower workers. Works councils are key players in implementing climate protection on the ground. Co-determination and collective bargaining agreements ensure greater fairness in the company while also guaranteeing economic and social participation as well as security, especially in times of change. Therefore, decent work, binding collective agreements and co-determination must be strengthened to create an environment of trust and acceptance. This must apply to existing and new jobs and sectors.

What are the trade unions doing to contribute to a Just Transition? A lot! One outstanding example is the “Revierwende” project. It is a central contribution to ensuring worker participation and representation of their interests in the process of phasing out coal mining and coal-based energy production. The project will support workers, works councils, local unions, and employees through its regional offices in all remaining coal regions. With a staff of more than 20 colleagues, the Revierwende-Team is active where it counts: the home regions and workplaces of those affected by the coal phase out.

Moch is the Director of Structural Policy, Industry and Services for the German Confederation of Trade Unions (DGB)

 

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Links

COP27: this is the official website for the upcoming meeting of the Conference of the Parties (COP), the forum for national governments and observers to debate the goals and timelines to address climate change. If you want to participate virtually, go here.

Global: The Intergovernmental Panel on Climate Change (IPCC) is the United Nations body for assessing the science related to climate change.

IndustriALL: a global trade union federation, it represents 50 million workers in 140 countries in the mining, energy and manufacturing sectors and fights for better working conditions and trade union rights around the world, including in the Just Transition process.