The economic impact of Canada-United States regulatory convergence: from the Canada-United States auto pact to the North American free trade agreement and beyond.

• Author: Leatherberry, Wilbur
• Position: PROCEEDING OF THE CANADA-UNITED STATES LAW INSTITUTE HENRY T. KING, Jr. ANNUAL CONFERENCE on THE CANADA-UNITED STATES REGULATORY REGIME: REVIEW REFORM, RECOVERY: Cleveland, Ohio April 8-10, 2010

Session Chair--Wilbur Leatherberry

United States Speaker--Meera Fickling

Canadian Speaker--Maureen Irish

INTRODUCTION

MR. LEATHERBERRY: Thank you, Dan. On behalf of my faculty, colleagues, and the others in the Law School community, I welcome you to Case Western Reserve University School of Law for this conference. I have the privilege of introducing the panel for the Economic Impact of Canada-United States Regulatory Convergence: From the Canada-United States Auto Pact to the North American Free Trade Agreement and Beyond.

One of the things I remember about Henry is a fourth principle that Dan did not mention, and that is that the conference should run on schedule. One of my jobs is thus to try to keep us on schedule. I will not take too much time, but I do want to introduce our two speakers.

Meera Fickling (1) is a research analyst from the Peterson Institute for Economics in Washington, D.C. (2) She has been a research analyst since 2008. Her areas of research include climate change and trade issues, particularly in North America. She is co-authoring a book on the North American Free Trade Agreement (NAFTA) (3) and climate change policy to be published in 2010.

Maureen Irish (4) is a professor at the Faculty of Law of the University of Windsor, Ontario. She teaches international economic law, international business transactions, Canada-United States legal issues, and private international law, what we would call our conflicts of law. She is the author of Customs Valuation in Canada, (5) and editor of The Auto Pact: Investment, Labour and the WTO, (6) and some other publications. She has served on dispute settlement panels under the Canada-United States Free Trade Agreement (7) and NAFTA.

Without further ado, I will introduce Meera Fickling, who will be our first speaker. We will reserve time at the end of this program for questions.

UNITED STATES SPEAKER

Meera Fickling *

MS. FICKLING: Thank you. (8)

FILLING THE LEGISLATIVE VACUUM: LOCAL, REGIONAL, AND EPA CLIMATE CHANGE EFFORTS AND UNITED STATES-CANADA INTEGRATION

Meera Fickling *

Introduction

The December 2009 Copenhagen climate conference was not a high point in the history of international negotiations, but many viewed the non-binding commitments made there to be a step in the right direction. (9) Both the United States and Canada pledged a 17% reduction in greenhouse gas (GHG) emissions. (10) Along with international pressure, these commitments encouraged other countries such as China, Brazil, and India to follow suit with limits on the emissions intensity of their economies. (11)

These commitments follow a long history of inaction, however, which has proven difficult to reverse. The sharp recession in 2009 significantly reduced carbon emissions, (12) making targets set according to 1990 or 2005 levels easier to meet. But the wrenching economic adjustments have conversely made the task all the more difficult politically, and both United States and Canadian governments have chosen not to enact economy-wide climate change regulation at this time. (13)

In the existing vacuum of legislative action, various states and provinces have pursued their own climate change policies. (14) Federal regulatory agencies in the United States may also play a role in the near future. Although bilaterally coordinated, economy-wide climate legislation would be the best policy for both countries, it seems the near-term goal will instead be to coordinate this patchwork of policies in the absence of leadership from national legislatures.

Why Have an Integrated Energy Policy?

Canada and the United States share a common environment and a long history of environmental cooperation. The 1909 Boundary Waters Treaty established the International Joint Commission as a forum for cooperation on water issues, (15) and the 1978 Great Lakes Water Quality Agreement established common water quality responsibilities for the region. (16) In addition, the United States and Canada have signed acid rain and tram-boundary smog agreements. (17)

The North American Free Trade Agreement (NAFTA) region also has an interdependent energy market. How energy is produced, used, and traded has a large impact on GHG emissions and affects how each country can adapt to a low-carbon future. The United States derives about a fifth of its oil from Canada, (18) and in 2008 about two thirds of the crude oil produced in Canada was shipped to the United States. (19) While Canadian electricity does not make up a large portion of most states' electricity portfolios, it does comprise a major percentage of total consumption in a few border states. Vermont obtains almost 40% of electricity consumed from Quebec, (20) and North Dakota and Minnesota obtain more than 10% of electricity consumed from Manitoba. (21)

In addition, Canada is the largest supplier by far of energy-intensive manufactures to the United States, including steel (20% of United States imports), cement (53% of United States imports), paper (52% of United States imports), and aluminum (55% of United States imports). (22) In total, Canada exported forty-four billion dollars of highly traded, energy-intensive products to the United States in 2008. (23) As a result, both countries are justifiably concerned about maintaining a level North American playing field for energy-intensive manufacturing.

Given the two countries' strong energy interdependence, decisions that affect energy consumption in one jurisdiction will likely have spillover impacts bilaterally. Consequently, the region has a strong interest in harmonizing climate policies. Below, this paper lays out the policies on the table in the United States and Canada, examines their implications for bilateral trade and cooperation, and offers suggestions for coordinating these measures.

Canadian Policy

Canadian policy faces cross-cutting environmental and economic interests pitting climate change objectives against the exploitation of natural resources, especially oil sands. In both areas, Canadian officials are concerned that their policies may create frictions with their NAFTA partners that could affect regional trade and investment. (24) Because Canada exports tens of billions of dollars of energy-intensive products to the United States, (25) it is highly concerned about competitiveness impacts on these industries should it fail to synchronize its policies with the United States. As a result, Canada has remained paralyzed on climate change, deferring action on the issue until the United States decides on its own policy course. (26)

In the interim, Canada is slowly moving away from its previous climate change plan, Turning the Corner. (27) In its January 2010 Copenhagen submission, Canada pledged to reduce emissions 17% below 2005 levels by 2020--in contrast to Turning the Corner's 20% by 2020 target--in line with the United States' Copenhagen promise and United States legislation currently on the table. (28) Canada further qualified its submission as "to be aligned with the final economy-wide emissions target of the United States in enacted legislation." (29) Thus, the likelihood that Canada will act ahead of the United States is slim.

However, there is an additional variable in the Harper Administration's climate policy calculus: Bill C-311, a piece of legislation that passed the House of Commons in May 2010 and awaits a vote in the Senate as of the writing of this paper. (30) The Bill requires the Administration to develop a plan to reduce emissions by 25% below 1990 levels by 2020, or approximately 40% below 2005 levels. (31) If the Bill passes the Senate--an outcome that is fax from guaranteed, seeing as an identical bill failed in the Senate in 2008 (32)--Canada's current approach to climate change will clearly require significant revamping, although the Administration may strike a deal with the opposition in order to lower the targets. Even if the Bill does not pass, however, a close vote displaying political support for action on climate change could cause the Canadian government to re-think its wait-and-see approach.

United States Policy

To date, the United States climate policy has largely been pursued by individual states, many following precedents of performance standards set by California. (33) Thirty states adopted a renewable portfolio standard, (34) and seventeen states committed to adopting automobile emissions standards that would produce fuel economy improvements in excess of federal regulation. (35) Many states also implemented energy efficiency measures. (36)

With the entrance of the Obama administration, this dynamic appeared to have changed. The administration has directed the National Highway Transportation Safety Authority to raise fuel economy standards to California levels (37) and issued an endangerment finding for carbon dioxide. (38) Most importantly, a cap-and-trade bill, the American Clean Energy and Security Act (ACES), passed the House of Representatives, (39) and a similar bill, the American Power Act, was introduced in the Senate. (40)

Since then, however, the United States has failed to pass meaningful legislation at the federal level. The Senate progressively watered down climate change proposals, until Majority Leader Harry Reid finally announced on July 22, 2010 that no comprehensive measure to address climate change would be addressed before the August recess--not even a renewable portfolio standard, which many had expected would be brought to the floor, (41) With the death of comprehensive climate change legislation in the Senate, United States climate policy for the near future turns to the states and to the EPA, both of which have led thus far. (42) Below, this paper details state and provincial initiatives on the table and examines their implications for Canada-United States integration. Next, the paper examines some hypothetical actions the EPA could take to reduce carbon emissions.

State and Provincial Legislation

States are developing and...