Carbon Safeguard? Managing the Friction Between Trade Rules and Climate Policy

Abstract

The December 2015 Paris agreement on climate change did not include an enforcement mechanism. Long-recognized potential frictions between climate goals and trade rules therefore remain. This article will present a concrete policy solution that both ensures continued adherence to core multilateral trade commitments while allowing nations to pursue independent greenhouse gas mitigation policies. A ‘carbon safeguard’ would allow for border adjustments on select imports from countries with less onerous carbon pricing policies but only after demonstration of injury to a domestic industry as a result of differential carbon policies. This process would concentrate complicated carbon border adjustments on a small subset of carbon-intensive and trade-sensitive sectors but continue broad adherence to the long-standing WTO ‘national treatment’ principle. The structure also would incorporate hard-earned lessons from trade remedy procedures under current WTO rules.