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David Brodwin's blog

Cutting Carbon, Saving Jobs

Last week, 175 world leaders inked an accord to slow climate change by cutting carbon emissions worldwide. The agreement commits the U.S. to reduce carbon emissions 26 percent by 2025. Other nations have made similar commitments.

But even as the ink dries, a debate rages about how to achieve the reductions. Some believe it should be done top-down, by regulation, directing the industries that emit most of the carbon pollution to make specific cuts. Others believe that the government should refrain from industry-by-industry directives and instead tax carbon uniformly across the entire economy. Proponents of a carbon tax (including the American Sustainable Business Council) argue that it a tax is simpler, easier to administer, harder to cheat and less disruptive of healthy market competition than any other approach.

Conservative politicians continue to doubt climate change, but the evidence grows. Behind the scenes, some conservatives are quietly discussing how to back away from denial and what to propose in its place. Some conservatives are beginning to consider a "revenue-neutral, border-adjusted carbon tax." They see this option as the most market-friendly, limited-government approach to climate change.

Let's focus on the two words "border-adjustment." These two words are essential for political support of a carbon tax. Border adjustment means that that the U.S. would apply a tax on products and services from countries that don't put a price on carbon.

Without border adjustment, if the U.S. imposes a carbon tax and the countries that we trade with don't, then U.S. companies (and workers) suffer a disadvantage. U.S.-made goods and services will be more expensive than the same goods produced elsewhere. Jobs and profits will move to countries that refuse to address climate change. The threat is greatest for industries that use a lot of energy such as the metals, cement and paper industries.

The bad news is that border adjustment may not be legal. Existing trade agreements like NAFTA and the General Agreement on Tariffs and Trade prohibit most tariffs on international trade, and the World Trade Organization enforces these restrictions. New agreements in formation like the Trans-Pacific Partnership carry these limits even further.

Economists and policy experts disagree on whether a border-adjusted carbon tax can withstand legal challenge. It's a murky area, without clear precedent. Tabitha Benney, a professor at the University of Utah, writes, "Under current international law ... border adjustments are illegal." She points out that international bodies like the WTO have the legal muscle to force the U.S. to roll back a carbon tax if it does not comply with existing international trade agreements.

This is more than an abstract threat. The WTO has already flexed its muscle to undermine climate progress. In February it struck down a plan by India to install 100 gigawatts of solar capacity, because India's plan required that some of the solar cells and panels be made locally. (The ruling is under appeal, with China taking India's side against the U.S.)

Others claim a border adjust for carbon can survive WTO scrutiny. Jennifer Hillman is a former member of the WTO Appellate Body (a group within WTO that judges claims of unfair trade practices) and argues that a carbon tax can be designed in a way that complies with existing trade agreements. "The key is to structure [it] as a straightforward extension of domestic climate policy to imports. If so designed, there should be few questions about the measure's consistency with the WTO rules." The American Action Forum, a self-described "center-right" think tank, expands on Hillman's argument, showing that the question of border adjustment cuts across the usual partisan lines in the climate debate.

The hotly debated question of border adjustments may seem arcane and technical, but it is central to the fight against climate change. Without a legally defensible way to handle border adjustments, any country that trims carbon faces intense and unrelenting opposition from its energy-intensive businesses and their employees. Trade negotiators and the WTO must find a way to accommodate border adjustments. Otherwise, the accords signed last week with so much fanfare won't be worth the paper they're written on.

David Brodwin is a co-founder and board member of American Sustainable Business Council. This blog is adapted from a column recently published in U.S. News & World Report April 26, 2016.

Businesses for Boosting the Minimum Wage

Efforts to boost the minimum wage made real progress this week. California just approved an increase to $15 an hour by 2022, with New York close behind. This more than doubles the federal minimum wage of $7.25 an hour. If extended nationally, the new $15 minimum would benefit more than 50 million Americans.

Large national business organizations have strenuously opposed raising the minimum wage. The U.S. Chamber of Commerce couches its opposition in worker-friendly terms, saying that "minimum wage increases end up hurting the people they're intended to help." The National Federation of Independent Businesses is more blunt: "Raising the minimum wage will kill jobs and stifle economic output" said a spokesperson last year.

To listen to these two business groups, you'd get the impression that businesses all over the country are up in arms. But a poll conducted by the research firm of Frank Luntz, a leading GOP messaging guru, says that's not so. Luntz has spent decades advising GOP candidates and elected officials on political communications. His impact on the Republican message goes back to Newt Gingrich's "Contract with America."

LuntzGlobal recently surveyed American business executives, mostly owners and CEOs, for the Council of State Chambers. The study was leaked and is now publicly available. It shows that – far from opposing a minimum wage hike – business leaders support it, by a lopsided margin of 80 percent to 8 percent. (Twelve percent were neutral.)

The Luntz poll contacted 1000 C-suite executives, 73 percent of whom said they are owners or CEOs. Half of them head small businesses (with less than $50 million in annual revenue); the rest lead midsize or larger companies.

The Luntz poll is not entirely new news. Several earlier polls, including one done jointly by the American Sustainable Business Council and Business for a Fair Minimum Wage, also found strong support for a higher minimum wage among businesses owners. But it's nice to have confirmation from a pollster with deep ties to Republican elected officials who oppose a higher minimum wage.

Why is there such a discrepancy between what business owners say they want and what business organizations say, supposedly on behalf of their members?

First, there's a genuine difference of opinion among business owners depending on the scale, location and type of businesses they operate. Businesses that operate mostly locally (like brick-and-mortar retail and many service businesses) are more inclined to recognize that employees are also customers. They support a higher minimum wage because it lifts up the whole local economy. Businesses that operate in higher-cost cities and regions of the U.S. already pay most of their people more than the federal minimum wage. Raising the required minimum doesn't raise their costs much. Likewise, businesses that hire mostly workers with advanced skills already pay well above the minimum.

When we sort through these differences, it becomes clear that the handful of businesses now fighting a higher minimum wage fit a certain pattern: big employers of less-skilled workers, operating in poorer parts of the country. This relative handful of companies attempts to speak for all business everywhere and seeks to drive the debate.

Although only 8 percent of business leaders oppose a higher minimum wage, these holdouts are determined. They have a lot at stake economically given the size of their workforce. They have substantial budgets for lobbying, campaign contributions and issue advocacy. And they know how to funnel this money through nonprofit organizations to keep their names out of the public eye as they fight a higher wage.

Five hundred years ago the Italian political philosopher Machiavelli described the problem starkly:

"[T]here is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things," he wrote. "For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order."

That was written back in 1513. It remains true today.

David Brodwin is a co-founder and board member of American Sustainable Business Council. This blog is adapted from a column recently published in U.S. News & World Report April 8, 2016.

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