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Beyond Kyoto
Trade and Climate:
Potential Conflicts and Synergies
Prepared for the Pew Center on Global
Climate Change by
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Steve Charnovitz
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Relationship between trade and
climate change
• Positive interactions
– Free trade promotes economic growth
• More resources and public support for environmental
protection
– Free trade promotes efficiency
• Fewer resources wasted
• Examples
– Reducing energy subsidies good from both a free trade
and a climate perspective
– Trading emission allowances reduces climate mitigation
costs
– Free trade promotes technology diffusion
Relationship between trade and
climate change
• Negative interactions
– Free trade promotes economic growth > higher
emissions
– Free trade undermines ability of national
governments to regulate: race to the bottom
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Main issues
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• Are national and
international climate
change policies
consistent with WTO
rules?
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WTO consistency/
permissibility of:
– Domestic climate policies
(carbon taxes, efficiency
standards and emission
trading systems)?
– International climate
policies (e.g., CDM)?
– Trade measures against
countries that are not
taking action on climate
change
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Main issues
• Are national and
international climate
change policies
consistent with WTO
rules?
Examples:
• How to promote
greater harmony
between trade and
climate change
regimes?
–Saudi Arabia: countries could
use climate policies to protect
domestic interests
–EU Parliament called for new
initiatives to prevent nonparties from “obtaining unfair
competitive advantages”
–Venezuela: Kyoto
implementation could run afoul
of trade rules
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World Trade Organization (WTO)
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• Founded in 1995; 146 members
• Umbrella agreement + 17 subsidiary
agreements
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General Agreement on Tariffs and Trade (GATT)
Technical Barriers to Trade (TBT)
General Agreement on Trade in Services (GATS)
Agreement on Subsidies and Countervailing
Measures (SCM)
• Dispute settlement understanding (DSU)
– Two levels: panels and appellate body
– Decisions ordinarily binding
– Sanctions: authorization of self-help by victim state
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Basic GATT rules
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• Basic limitations
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– No quantitative restrictions (quotas, trade bans)
(GATT art. XIII)
– National treatment and most-favored nation
treatment (GATT art. III, I)
• No discrimination against imported products, or products
from one country versus another
• Must treat “like products” alike
• Issue: what products are “like”?
• Environmental exceptions (GATT art. XX(b), (g))
– Domestic measures ok
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• If necessary to protect human, animal or plant life
• If related to conservation of exhaustible natural resources
Domestic climate change policies I:
Taxes
• Examples
– Fuel economy tax
• Is tax on gas guzzling cars ok?
– Fuel carbon tax
• Can a country tax coal and natural gas differently, based
on carbon content?
– Process-based electricity tax
• Can a country tax electricity generated from coal and from
renewables differently?
• Issues:
– Are these “like products”?
– If like products, can differential treatment be
justified under Article XX?
Domestic climate change policies II:
Regulations
• Examples
– Fuel economy regulations
– Climate-friendly labeling: e.g., GHGs emitted
to produce the product
• Issues
– GATT: Are these “like” products?
– TBT Agreement: Preference for international
standards
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International climate policies
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• Emissions trading
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– Is international emissions trading subject to WTO
rules?
• Are AAUs, CERs, ERUs “goods” or “services”?
• CDM
– Could climate regime disqualify operating entities
and project developers from non-Kyoto parties?
• Clean energy export credits
– Could climate regime provide credits for exports of
“clean energy” to non-Kyoto parties?
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Trade measures
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• Defensive national policies to protect
competitiveness
– Examples
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• Duties/tariffs on states that don’t have strong climate
policies
• Border tax adjustments
• Multilateral trade measures
– Examples
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• Trade controls on non-parties to encourage participation
• Trade controls as a sanction for non-compliance
– Issues
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• Deference of WTO to MEAs?
• Justification under Article XX exceptions?
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Promoting synergies
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• Catalyzing international standards
• Facilitating taxes on energy
• Opening markets for environmental
goods and services
• Eliminating harmful energy subsidies
• Safeguarding eco-labeling
• Improving trade and climate regime
coordination
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