Addressing Leakage and Competitiveness in US Climate Policy: Issues Concerning Border Adjustment Measures

Abstract

Discussions in the United States have been accelerating over the past year about the possible adoption of a nationwide emissions trading scheme and how to address issues concerning the competitiveness of American industries, as well as the related problem of carbon leakage. The discussions are likely to become even more intense in 2009 with the advent of a new Congress and new Administration. The purpose of this report is to inform those discussions and to advance understanding of the issues in other countries. It does so by focusing on the potential role of one of the mechanisms to address the competitiveness and leakage concerns, namely the use of border adjustment measures. The analysis addresses a wide range of issues concerning border adjustment measures - including elements in proposed US legislation and the prospects for passage of cap-and-trade legislation; questions about design features of border adjustment measures in discussions in the US and their prospects for inclusion in possible future legislation; the compatibility or incompatibility of proposed legislation with World Trade Organization (WTO) rules and obligations; a comparison of the debates in the EU and US about the adoption of border adjustment measures; and the prospects for international coordination among the EU, US and other countries in the development of the post-2012 climate regime.