A Pragmatic Approach to Carbon Border Measures

Timothy Meyer,Todd N Tucker

doi:10.1017/s1474745621000409

Abstract

AbstractThis article offers the justification for a type of carbon customs union in which countries with a diverse range of high-ambition domestic climate measures would adopt a common external tariff on carbon intensive imports from countries outside the union. We explain why any pragmatic approach to carbon border measures (CBMs) is likely to create problems under prevailing interpretations of the World Trade Organization's (WTO) primary rules. Given the urgency of the climate crisis and the fact that the legality of a CBM – no matter how designed – will be a question of first impression for any WTO dispute panel, WTO consistency should take a backseat to considerations of domestic legal and political feasibility in designing a CBM. Instead of trying to fit a CBM into current understandings of WTO rules, WTO members should renegotiate WTO rules to permit a range of aggressive, but likely trade-restrictive, decarbonization measures. Having said that, we also recognize that WTO negotiations may take longer than optimal from a decarbonization standpoint. We therefore suggest an approach that would allow WTO members to take advantage of flexibilities that existing WTO rules afford.

Highlights

The climate crisis is poised to become the most significant trade issue of the decade
Given the urgency of the climate crisis and the fact that the legality of a carbon border measures (CBMs) – no matter how designed – will be a question of first impression for any World Trade Organization (WTO) dispute panel, WTO consistency should take a backseat to considerations of domestic legal and political feasibility in designing a CBM
As a result, barring speedy and successful negotiations, the WTO-consistency of any CBM is likely to hinge on flexibilities, that have not been interpreted in a manner sufficiently deferential to national regulators

Summary

Introduction

The climate crisis is poised to become the most significant trade issue of the decade. Developed countries’ historically low trade barriers, combined with long-term decreases in global transportation costs, mean that companies can locate production in countries without meaningful domestic decarbonization measures and export their products to countries with tough decarbonization rules, evading efforts to address climate change This process, known as carbon leakage, has two effects.[6]. Carbon leakage weakens political support for decarbonization efforts by creating an incentive for jobs to move from developed countries to developing countries Both the United States under the Biden administration and the EU have linked their climate goals to the development of good, sustainable jobs, especially in local communities and regions that have not historically benefitted from trade liberalization. We suggest re-construing the exceptions is both defensible and appropriate in light of the urgency of the climate crisis

A Diversity of Approaches to Decarbonization

The GATT’s Primary Rules

GATT Flexibilities

Conclusion