International Trade Law and the Economics of Climate Policy Jason - - PowerPoint PPT Presentation
International Trade Law and the Economics of Climate Policy Jason Bordoff, The Brookings Institution June 9, 2008 Prepared for Brookings Climate and Trade Forum 6/11/2008 1 Overview Border adjustments to address leakage and
6/11/2008 1
June 9, 2008 Prepared for Brookings Climate and Trade Forum
6/11/2008 2 2
Border adjustments to address leakage and
Benefits Risks
Potential WTO Issues
Free allocation to address competitiveness
Potential WTO Issues and other harms
Alternative approaches
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Reduce Leakage? Protect Competitiveness of Certain Carbon-
Politics
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Reduce Leakage?
Leakage estimates are small Border adjustments would do little to reduce
Protect Competitiveness of Certain Carbon-
Politics
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climate policies are offset by emission increases in the rest of the world
90% 10% Domestic emissions reductions that aren't offset by increases in the rest
Leakage
10.5%. US leakage under Kyoto only 5.5%
leakage in 2010
20%
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Source: EPA Analysis of S. 2191
Reasons for small impact 1. Ignores production leakage from export competitiveness 2. Applies only to subset of imports from subset of countries 3. Does not address increased global demand for fossil fuels from lower prices that reductions in US quantity demanded will cause
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Source: Houser et al. (2008); Houser and Rosen (2007)
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Reduce Leakage? Protect Competitiveness of Certain Carbon-
Politics
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Source: EPA Analysis of S. 2191
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Reduce Leakage? Protect Competitiveness of Certain Carbon-
Politics
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Abused for purely protectionist reasons Retaliatory tit-for-tat trade wars
China may point to historical responsibility or
Sets dangerous precedent, particularly if U.S. takes
Risk to free trade when free trade is already under
Risk of noncompliance with WTO law
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Is border adjustment consistent with non-
If not, is it permissible under Article XX
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Is border adjustment consistent with non-
National Treatment obligations Most-Favored Nation obligations
If not, is it permissible under Article XX
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Treatment “no less favorable” than that
“Like”: High-carbon steel “like” low-carbon steel
Distinctions not permitted based on how a product is
“No less favorable”:
How much did U.S. firm pay for permit?
How to determine carbon content of imports?
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Is border adjustment consistent with non-
National Treatment obligations Most-Favored Nation obligations
If not, is it permissible under Article XX
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Prohibits discrimination between WTO Members Applying only to countries without “comparably
“Comparably Effective”:
Hard to determine given varied approaches Using national reduction data may be problematic
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Is border adjustment consistent with non-
National Treatment obligations Most-Favored Nation obligations
If not, is it permissible under Article XX
Article XX(g) Chapeau
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“Relating to conservation of exhaustible natural
“Related to”?
“primarily aimed at” conservation “Substantial relationship” betw measure and goal “Means and ends relationship” that is “close and real” Not clear climate aims would be less “effective” or
But may not matter how much benefit to be
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“Measures are not applied in a manner that
Purpose: prevent “abuse of the exceptions” and
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Possible WTO concerns:
Larger impact on protecting certain firms than on reducing
May need to permit importers to demonstrate individual
Must permit flexibility in how other nations address climate
Must take “into consideration different conditions which
Must engage in “serious, across-the-board negotiations”
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Border adjustments to address leakage and
Benefits Risks
Potential WTO Issues
Free allocation to address competitiveness
Potential WTO Issues and other harms
Alternative approaches
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WTO Compliance
Test for illegal subsidy under SCM Agreement:
“Financial contribution”*** “Benefit” “Specific” “Adverse Effects”***
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“Financial contribution”
Free allocation “functionally equivalent” to distributing cash
(CBO)
“Adverse Effects”
“Serious prejudice”: “displaces or impedes imports” by reducing
costs in U.S.
EU), so imports might not be harmed (nor will U.S. employment be protected)
importers (and also protect employment)
WTO compliant only to extent ineffective in protecting U.S. firms
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Expected costs of border adjustments may well
Do little for environment Potential for abuse for purely protectionist reasons Risk of tit-for-tat trade retaliation Risk of WTO noncompliance
Free allocation also not good policy option
Benefits accrue to shareholders, but costs still passed
Possible WTO concerns depending on how designed
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International engagement and negotiation U.S. unilateral action to show leadership, at long
Use revenue from auction to help dislocated
Work with other high-income countries to
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Sectors that Face Greatest Competition from Annex II Countries Also Comprise Largest Shares of US GDP and Employment
0.11 0.20 Aluminum 0.19 0.29 Steel 0.36 0.44 Paper and pulp 0.38 0.43 Cement 0.65 1.68 Chemicals Share of U.S. Employment Share of U.S. GDP
Source: Houser et al. 2008