To be environmentally effective, climate policies need to protect against simply shifting pollution from one country to another. To be politically sustainable, climate policies need to create a level playing field for domestic manufacturers and their international competitors. Measures to achieve these goals, such as levies and rebates on imported and exported goods to equalize climate costs (border measures) also need to comply with international trade laws.
To inform public debate on these issues, Climate Advisers analyzed whether carbon border measures would comply with World Trade Organization obligations.
This study, published with the American Acton Forum and the German Marshall Fund, finds that carbon border measures could indeed be applied in a way that met competitiveness and environmental objectives without violating U.S. trade obligations. We also find that allocating the revenue from a border measure to international climate programs would further strengthen the legal case.
America must address climate change to be competitive on the world stage – and we can do it in a way that addresses both policy and political concerns.
Changing Climate for Carbon Taxes: Who’s Afraid of the WTO?
Federal efforts to impose a cost on carbon emissions raise meaningful questions about the international competitiveness of U.S. energy-intensive industries and the likelihood of emission leakage to countries without similar policies. Any efforts to “level the playing field” for international trading partners will raise flags regarding compatibility with our international obligations, particularly with respect to the rules of the World Trade Organization (WTO). In this paper, former WTO appellate body member Jennifer Hillman discusses the design of potential carbon tax border measures and how they can comply with WTO obligations.