Energy and Climate Issues Awaiting Mike Froman at USTR

With Mike Froman nominated to become U.S. Trade Representative (USTR), change in how the White House handles international energy is sure to follow. But Froman won’t be able to leave energy or climate behind as he moves across the street. I see at least five areas in the offing where the USTR is going to be drawn into energy and climate.

Clean energy trade. The United States has adopted a strong stance against others’ restrictions against clean energy trade and investment. Most recently, it challenged local content requirements in India’s solar program. Several colleagues and I wrote a couple years ago about the pitfalls of taking too hard a line here: there’s a delicate balancing act to be played between capturing the benefits of open trade and letting countries create the political conditions required to boost clean energy use.

Natural gas exports. This is Department of Energy territory: a host of companies have applied for permission to freely export natural gas, and DOE will say yes or no. But if permit applications start being rejected, there’s a real potential for WTO lawsuits against the United States, which would land the issue over at USTR. In any case, one can only hope that USTR will be involved up front, since a decision against exports would have broader reverberations for U.S. trade relationships.

Carbon tariffs and U.S.-EU trade talks. Americans who have only focused on climate change in the last few years might be forgiven for believing that carbon tariffs are something that Congress considered using in conjunction with a cap-and-trade scheme to make sure that China wouldn’t get an unfair competitive advantage. But the idea originated more prominently in Brussels and Paris around 2008 as a way to protect Europe against the United States, and to prod Washington to impose its own carbon pricing. I wouldn’t be surprised to see this come back, perhaps in the context of ongoing U.S.-EU trade talks, which will undoubtedly see some in Europe ask for measures to make sure the United States doesn’t get an unfair edge.

More natural gas exports – and the TPP. Japan is set to join talks on the Trans-Pacific Partnership (TPP) trade agreement. If you’ve visited Tokyo recently, there’s a decent chance you’ve been asked whether joining TPP would give Japan special access to U.S. exports of LNG. While decisions on applications to export LNG to countries with which the United States doesn’t have special free trade agreements is housed at the DOE, a decision on whether to give Japan special access as part of a trade deal will need to run through USTR.

Europe’s aviation scheme. European efforts to expansively include foreign airlines in its Emissions Trading Scheme didn’t go down well in most of the world. Ongoing negotiations are aiming to find an alternative approach agreeable to all the major players. Froman and Todd Stern (at State) have been leading this for the United States. I have a tough time believing that a move to USTR will leave him less involved.

Wildcards? Oil exports (again, not a USTR decision, but with consequences for trade relationships), potential NAFTA fallout from a Keystone XL decision, border adjustment measures accompanying a (highly unlikely) U.S. carbon tax, and I’m sure much more.