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Climate Change Meets Trade in Promoting Green Growth: Potential Conflicts and Synergies

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  • ZhongXiang Zhang

    (Senior Fellow Research Program East-West Center)

Abstract

To date, border adjustment measures in the form of emissions allowance requirements (EAR) under the U.S. proposed cap-and-trade regime are the most concrete unilateral trade measure put forward to level the carbon playing field. If improperly implemented, such measures could disturb the world trade order and trigger a trade war. Because of these potentially far-reaching impacts, this paper focuses on this type of unilateral border adjustment, which requires importers to acquire and surrender emissions allowances corresponding to the embedded carbon contents in their goods from countries that have not taken climate actions comparable to that of home country. This discussion is mainly on the legality of unilateral EAR under the WTO rules. Given that the inclusion of border carbon adjustment measures is widely considered essential to secure passage of any U.S. legislation capping its greenhouse gas emissions, the paper argues that, on the U.S. side, in designing such trade measures, WTO rules need to be carefully scrutinised, and efforts need to be made early on to ensure that the proposed measures comply with them. After all, a conflict between the trade and climate regimes, if it breaks out, helps neither trade nor the global climate. The U.S. needs to explore, with its trading partners, cooperative sectoral approaches to advancing low-carbon technologies and/or concerted mitigation efforts in a given sector at an international level. Moreover, to increase the prospects for a successful WTO defence of the Waxman-Markey type of border adjustment provision, there should be: 1) a period of good faith efforts to reach agreements among the countries concerned before imposing such trade measures; 2) consideration of alternatives to trade provisions that could be reasonably expected to fulfill the same function but are not inconsistent or less inconsistent with the relevant WTO provisions; and 3) trade provisions that can refer to the designated special international reserve allowance pool, but should allow importers to submit equivalent emission reduction units that are recognized by international treaties to cover the carbon contents of imported products. The paper concludes by arguing that the major developing countries being targeted by such border carbon adjustment measures should make the best use of the forums provided under the United Nations Framework Convention on Climate Change and its Kyoto Protocol to effectively deal with the proposed border adjustment measures to their advantage.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2010.18.

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Date of creation: Feb 2010
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Handle: RePEc:fem:femwpa:2010.18

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Keywords: Post-2012 climate negotiations; Border carbon adjustments; Carbon tariffs; Emissions allowance requirements; Cap-and-trade regime; Lieberman-Warner bill; Waxman-Markey bill; World Trade Organization; Kyoto Protocol; Developing countries; United States;

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  1. ZhongXiang Zhang, 2009. "Multilateral Trade Measures in a Post-2012 Climate Change Regime?: What Can Be Taken from the Montreal Protocol and the WTO?," Working Papers 2009.81, Fondazione Eni Enrico Mattei.
  2. Trevor Houser & Rob Bradley & Britt Childs, 2008. "Leveling the Carbon Playing Field: International Competition and US Climate Policy Design," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4204.
  3. Ian W. H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," NBER Working Papers 5967, National Bureau of Economic Research, Inc.
  4. Zhang, Zhong Xiang, 1999. "Should the rules of allocating emissions permits be harmonised?," Ecological Economics, Elsevier, vol. 31(1), pages 11-18, October.
  5. Zhang, ZhongXiang & Assunção, Lucas, 2002. "Domestic climate policies and the WTO," MPRA Paper 13223, University Library of Munich, Germany.
  6. Zhang, ZhongXiang, 2003. "Why Has China not Embraced a Global Cap-and-Trade Regime?," MPRA Paper 12783, University Library of Munich, Germany, revised Jul 2007.
  7. ZhongXiang Zhang, 2003. "Open Trade with the U.S. without Compromising Canada’s Ability to Comply with its Kyoto Target," Working Papers 2003.68, Fondazione Eni Enrico Mattei.
  8. Bhagwati, Jagdish & Mavroidis, Petros C., 2007. "Is action against US exports for failure to sign Kyoto Protocol WTO-legal?," World Trade Review, Cambridge University Press, vol. 6(02), pages 299-310, July.
  9. Roland Ismer & Karsten Neuhoff, 2007. "Border tax adjustment: a feasible way to support stringent emission trading," European Journal of Law and Economics, Springer, vol. 24(2), pages 137-164, October.
  10. Zhang, ZhongXiang, 1998. "Greenhouse gas emissions trading and the world trading system," MPRA Paper 12971, University Library of Munich, Germany.
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Cited by:
  1. ZhongXiang Zhang, 2010. "China in the Transition to a Low-Carbon Economy," Economics Study Area Working Papers 109, East-West Center, Economics Study Area.

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