Border Tax Adjustments: Climate Change, the WTO, and New Tools for International Environmental Law-Making

By Nielsen, Laura; Brewster, Rachel et al. | Proceedings of the Annual Meeting-American Society of International Law, Annual 2009 | Go to article overview

Border Tax Adjustments: Climate Change, the WTO, and New Tools for International Environmental Law-Making


Nielsen, Laura, Brewster, Rachel, Hey, Ellen, Zasloff, Jonathon, Proceedings of the Annual Meeting-American Society of International Law


This panel was convened at 2:45 p.m. on Friday, March 27, by its moderator, Steve Charnovitz of George Washington University Law School, who introduced the panelists: Rachel Brewster of Harvard Law School; Ellen Hey of Erasmus University School of Law; Laura Nielsen of the University of Copenhagen; and Jonathon Zasloff of UCLA School of Law. *

INTRODUCTORY REMARKS BY STEVE CHARNOVITZ ([dagger])

Welcome to our panel on climate border adjustments and world trade law. This panel has two segments. First, we have two trade law experts discussing whether such measures are consistent with trade law. The speakers are Laura Nielsen from the University of Copenhagen Law School and Rachel Brewster from Harvard Law School. The second segment features two prominent scholars from other fields of international law. They are Ellen Hay from Erasmus School of Law in Rotterdam and Jonanthan Zasloff from UCLA Law School. We have tasked these two panelists to reflect on the implications of the debate on trade and climate.

* Jonathon Zasloff did not submit remarks for the Proceedings.

([dagger]) Associate Professor of Law, George Washington University Law School.

BORDER CARBON ADJUSTMENTS, THE UNFCCC, AND WTO RULES

My presentation on Trade and Climate Change concludes that border carbon adjustments can be consistent with both the climate change and WTO rules--depending, of course, on their design--but that they are not necessarily attractive.

I define border carbon adjustments (or border tax adjustments, carbon taxes, etc.) as border taxes levied on especially carbon intensive products such as steel, aluminum, paper, chemicals, and cement, originating from countries that have not committed themselves to strict climate change laws to lower their green house gas (GHG) emissions. These countries are most often understood as those that have not committed themselves under a cap in the Kyoto Protocol or those that will not commit themselves under a cap in a Post-Kyoto Agreement. Border carbon adjustments can, of course, be aimed at all countries and a broader range of products, or potentially all products, based on their carbon footprint stemming from their production and perhaps even their transportation. However, for purposes of this presentation, I will limit myself to talking about those measures, which are aimed at countries that are not committed under a cap.

The economic rationale behind border carbon adjustment measures is to counter the competitive advantage a foreign product may have because it benefits from coming from a country that is not committed under a cap and thus does not have strict rules for GHG emissions. The environmental rationale is to avoid carbon leakage. Carbon leakage is the term used for the phenomenon that companies or industries may relocate to another country where rules for GHG emissions are not so strict, which results in a potential rise in total global GHG emissions, or at best that GHG emissions are not curbed. Border carbon adjustments are also viewed as a type of "negative" negotiation strategy in the run-up to the "COP15" in Copenhagen in December 2009. The mere threat of being met by such a measure, should a country fail to commit itself under a cap in Copenhagen, is thought to pressure more countries into a commitment. Others view this argument as encouraging countries to negotiate in bad faith because its goal is to counteract the effects of a "failed" agreement on climate change. And, finally, domestic reasons behind enacting border carbon adjustments should not be underestimated, particularly in the United States.

Without a specific measure to examine, the legal analysis of border carbon adjustment measures amount to some general observations. My first point is to underline that border carbon adjustments need not "just" be WTO-consistent but those measures must also be consistent with the climate change rules (i.e., the United Nations Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol, and a Post-Kyoto Agreement) assuming, of course, that the country enacting the border carbon adjustment is a party to those Agreements and Protocols. …

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