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Domestic climate policies and the WTO

Author

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  • Zhang, ZhongXiang
  • Assunção, Lucas

Abstract

Experience with existing multilateral environmental agreements (MEAs) shows that trade measures agreed to within the MEAs themselves may not necessarily lead to a dispute between parties. On the contrary, there is a great chance that disputes may arise from national measures undertaken to fulfil those obligations under the MEAs. This possibility of conflict with their WTO obligations may well arise in implementing the Kyoto Protocol, given that Article 2 of the Protocol gives Annex 1 countries considerable flexibility in the choice of domestic policies to meet their greenhouse gas emissions commitments. It is highly likely that Annex 1 governments with differentiated legal and political systems might pursue their domestic policies in such a way as to unfairly favour domestic producers over foreign ones. Such differential treatments could occur in governing eligibility for, and the amount of, the subsidy, in establishing energy efficiency standards, in the determinations of the category of eco-labelled products and the procedures of establishing eco-labels, in the specifications in tenders, and in specifying condition for participating in government procurement bids. In case where a country unilaterally imposes a carbon tax, it may adjust taxes at the border to mitigate competitiveness effects of cheaper imports not subject to a similar level of the carbon tax in the country of origin. Measure of this sort may well raise complex questions with respect to the WTO consistency and the conditions under which border taxes can be adjusted to accommodate a loss of international competitiveness. All this clearly indicates the necessity of addressing policy coordination between the trade and climate regimes. Against this background, this paper discusses carbon/energy taxes, subsidies, energy efficiency standards, eco-labels and government procurement policies, and explores the potential interaction between these domestic climate polices and WTO rules. It highlights their potential conflicts, and argues that such conflicts can be avoided or at least minimized if WTO rules are carefully scrutinised at the time Annex 1 governments undertake measures to achieve the required reductions in emissions. The paper suggests an early process of pursuing consultations between WTO members and the Parties to the Climate Change Convention and points to the need of further exploring ways to enhance synergies between the trade and climate regimes.

Suggested Citation

  • Zhang, ZhongXiang & Assunção, Lucas, 2002. "Domestic climate policies and the WTO," MPRA Paper 13223, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13223
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    References listed on IDEAS

    as
    1. ZhongXiang Zhang, 2000. "Estimating the size of the potential market for the Kyoto flexibility mechanisms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 491-521.
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    Citations

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    Cited by:

    1. Zhang, Zhong Xiang, 2012. "Competitiveness and Leakage Concerns and Border Carbon Adjustments," International Review of Environmental and Resource Economics, now publishers, vol. 6(3), pages 225-287, December.
    2. ZhongXiang Zhang, 2013. "Trade in environmental goods, with focus on climate-friendly goods and technologies," Chapters,in: Research Handbook on Environment, Health and the WTO, chapter 19, pages 673-699 Edward Elgar Publishing.
    3. ZhongXiang Zhang, 2012. "Climate Change Meets Trade in Promoting Green Growth: Potential Conflicts and Synergies," Chapters,in: Responding to Climate Change, chapter 6 Edward Elgar Publishing.
    4. Zhang, ZhongXiang, 2009. "Multilateral trade measures in a post-2012 climate change regime? What can be taken from the Montreal Protocol and the WTO?," Energy Policy, Elsevier, vol. 37(12), pages 5105-5112, December.
    5. Zhang, ZhongXiang, 2009. "Liberalizing climate-friendly goods and technologies in WTO environmental goods negotiations: product coverage, modalities, challenges and the way forward," MPRA Paper 16943, University Library of Munich, Germany, revised 10 Aug 2009.
    6. Charles Mason, 2011. "Eco-Labeling and Market Equilibria with Noisy Certification Tests," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(4), pages 537-560, April.
    7. Li, Aijun & Zhang, Aizhen & Cai, Hongbo & Li, Xingfeng & Peng, Shishen, 2013. "How large are the impacts of carbon-motivated border tax adjustments on China and how to mitigate them?," Energy Policy, Elsevier, vol. 63(C), pages 927-934.
    8. ZhongXiang Zhang, 2013. "Energy and Environmental Issues and Policy in China," Working Papers 2013.92, Fondazione Eni Enrico Mattei.
    9. ZhongXiang Zhang, 2010. "The U.S. proposed carbon tariffs, WTO scrutiny and China’s responses," International Economics and Economic Policy, Springer, vol. 7(2), pages 203-225, August.
    10. Claudia Schatan & Liliana Castilleja, 2007. "The maquiladora electronics industry on Mexico’s northern border and the environment," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 7(2), pages 109-135, June.
    11. Mathews, John, 2007. "Seven steps to curb global warming," Energy Policy, Elsevier, vol. 35(8), pages 4247-4259, August.
    12. Low, Patrick & Marceau, Gabrielle & Reinaud, Julia, 2011. "The interface between the trade and climate change regimes: Scoping the issues," WTO Staff Working Papers ERSD-2011-01, World Trade Organization (WTO), Economic Research and Statistics Division.
    13. repec:jes:wpaper:y:2012:v:4:p:256-273 is not listed on IDEAS
    14. Margareta Timbur, 2012. "Multilateral Environmental Agreements And The Trade Measures Contained In These Agreements," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 4(2), pages 256-273, June.
    15. Zhang, ZhongXiang, 2009. "Encouraging developing country involvement in a post-2012 climate change regime: carrots, sticks or both?," MPRA Paper 13174, University Library of Munich, Germany.
    16. Zhang, ZhongXiang, 2008. "Asian energy and environmental policy: Promoting growth while preserving the environment," Energy Policy, Elsevier, vol. 36(10), pages 3905-3924, October.
    17. Bao, Qin & Tang, Ling & Zhang, ZhongXiang & Wang, Shouyang, 2013. "Impacts of border carbon adjustments on China's sectoral emissions: Simulations with a dynamic computable general equilibrium model," China Economic Review, Elsevier, pages 77-94.
    18. Mehdi Abbas, 2007. "Taxe CO2 aux frontières, régime commercial multilatéral et lutte contre le changement climatique," Post-Print halshs-00168960, HAL.
    19. World Bank, 2007. "International trade and Climate Change : Economic, Legal, and Institutional Perspectives," World Bank Publications, The World Bank, number 6831.
    20. ZhongXiang Zhang, 2012. "Institutional and policy frameworks for sustainable infrastructure," Chapters,in: Infrastructure for Asian Connectivity, chapter 8, pages 254-300 Edward Elgar Publishing.
    21. Bao, Qin & Tang, Ling & Zhang, ZhingXiang & Qiao, Han & Wang, Shouyang, 2012. "Impact of Border Carbon Adjustments on China’s Sectoral Emissions: Simulations with a Dynamic Computable General Equilibirum Model," Working Papers 249391, Australian National University, Centre for Climate Economics & Policy.
    22. van Asselt, Harro & Biermann, Frank, 2007. "European emissions trading and the international competitiveness of energy-intensive industries: a legal and political evaluation of possible supporting measures," Energy Policy, Elsevier, vol. 35(1), pages 497-506, January.
    23. Kemfert, Claudia & Zhang, ZhongXiang, 2003. "Linking developing country's cooperation on climate control with industrialized country's R&D and technology transfer," MPRA Paper 41473, University Library of Munich, Germany.

    More about this item

    Keywords

    Carbon taxes; energy taxes; subsidies; energy efficiency standards; eco-labels; government procurement; WTO; climate change;

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • F18 - International Economics - - Trade - - - Trade and Environment
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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