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Designing Border Carbon Adjustments for Enhanced Climate Action

  • Michael A. Mehling (a1), Harro van Asselt (a2), Kasturi Das (a3), Susanne Droege (a4) and Cleo Verkuijl (a5)...

Abstract

The Paris Agreement advances a heterogeneous approach to international climate cooperation. Such an approach may be undermined by carbon leakage—the displacement of emissions from states with more to less stringent climate policy constraints. Border carbon adjustments offer a promising response to leakage, but they also raise concerns about their compatibility with international trade law. This Article provides a comprehensive analysis of border carbon adjustments and proposes a way to design them that balances legal, administrative, and environmental considerations.

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Copyright

Footnotes

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The authors acknowledge funding from the KR Foundation under the Climate Strategies project “Making the Trading System Work for Climate Change” (2016–2017), valuable comments at various stages of the project by James Bacchus, Dominique Bureau, Henry Derwent, Gary C. Hufbauer, Rodrigo Polanco, Ludivine Tamiotti, Joel P. Trachtman, and Jacob Werksman, and feedback from participants in the workshops “Border Carbon Adjustments: A Renewed Role after Paris?” on May 25, 2016 in Bonn, Germany, “Making the International Trading System Work for Climate Change: Assessing the Options” on October 19, 2017 in Crozet, France, and “Market Instruments for More Ambitious Climate Action: How to Adjust National Policies in a Bilateral or Global Market?” on May 22, 2018 in Mexico City, Mexico, as well as participants in the Side Event “The Role of Trade Policy in the Post-Paris Climate World” at the 23rd Session of the Conference of the Parties to the UNFCCC on November 10, 2017 in Bonn, Germany, and the “Talking Trade, Standards and Environment” Speaker Series at the World Trade Organization Secretariat on July 4, 2018 in Geneva, Switzerland. The authors are also indebted to five anonymous reviewers for extremely insightful, detailed, and constructive feedback. Any remaining errors or inaccuracies remain the responsibility of the authors.

Footnotes

References

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1 Paris Agreement on Climate Change, Art. 2(1), Dec. 12, 2015, TIAS No. 16-1104 [hereinafter Paris Agreement].

2 See, e.g., Pauw, Willem Pieter, Klein, Richard J. T., Mbeva, Kennedy, Dzebo, Adis, Cassanmagnago, Davide & Rudloff, Anna, Beyond Headline Mitigation Numbers: We Need More Transparent and Comparable NDCs to Achieve the Paris Agreement on Climate Change, 147 Climatic Change 23, 24 (2018); Balistreri, Edward J., Böhringer, Christoph & Rutherford, Thomas F., Carbon Policy and the Structure of Global Trade, 41 World Econ. 194 (2018).

3 The Paris Agreement puts in place a committee to facilitate implementation and promote compliance “that shall be expert-based and facilitative in nature and function in a manner that is transparent, non-adversarial and non-punitive.” Paris Agreement, supra note 1, Art. 15(2) (emphasis added).

4 Id. Art. 4(1).

5 Kyoto Protocol to the United Nations Framework Convention on Climate Change, Dec. 10, 1997, UN Doc. FCCC/CP/1997/7/Add.1, 37 ILM 22 [hereinafter Kyoto Protocol].

6 For a discussion of the Paris Agreement's “ratchet mechanism,” see Bodansky, Daniel, The Paris Climate Change Agreement: A New Hope?, 110 AJIL 288, 306–07 (2016).

7 United Nations, Paris Agreement, United States Communication (Aug. 4, 2017), available at https://treaties.un.org/doc/Publication/CN/2017/CN.464.2017-Eng.pdf.

8 See Balistreri, Böhringer & Rutherford, Carbon Policy and the Structure of Global Trade, supra note 2; Clara Brandi, Trade Elements in Countries’ Climate Contributions Under the Paris Agreement, Int'l Ctr. Trade & Sustainable Dev. 6 (2017).

9 See, e.g., Carbon Pricing Leadership Coalition, What Is the Impact of Carbon Pricing on Competitiveness?, at 1 (2016).

10 See generally John Ward et al., Carbon Leakage: Theory, Evidence and Policy Design (Partnership for Market Readiness Technical Note 11, 2015), available at http://documents.worldbank.org/curated/en/138781468001151104/pdf/100369-NWP-PUBLIC-ADD-SERIES-Partnership-for-Market-Readiness-technical-papers-Box393231B.pdf.

11 Id. at 37–41. Such domestic measures include output-based rebates, free allocation of emission rights, and full exemption of affected emitters, see infra Part III.C.

12 See, e.g., Sander de Bruyn, Ellen Schep & Sofia Cherif, Calculation of Additional Profits of Sectors and Firms from the EU ETS 2008–2015, CE Delft (2016) (documenting additional windfall profits made by industries covered by the EU ETS); Karsten Neuhoff, et al., Inclusion of Consumption of Carbon Intensive Materials in Emissions Trading: An Option for Carbon Pricing Post-2020, Climate Strategies, at 3 (May 2016) (arguing that free allocation “mutes the carbon price,” as well as the uptake of mitigation options in the sectors receiving allowances).

13 Kortum, Samuel & Weisbach, David, The Design of Border Adjustments for Carbon Prices, 70 Nat'l Tax J. 421, 422 (2017).

14 In 2001, the United States announced that it would not submit the Kyoto Protocol for ratification, thereby withdrawing from the quantified emission limitation and reduction objectives under the Protocol and endangering its entry into force. See Joanna Depledge, Against the Grain: The United States and the Global Climate Change Regime, 17 Glob. Change, Peace & Sec. 11, 27 (2005). This subsequently gave rise to a discussion of border adjustments against the United States. See Biermann, Frank & Brohm, Rainer, Implementing the Kyoto Protocol Without the USA: The Strategic Role of Energy Tax Adjustments at the Border, 4 Climate Pol'y 289 (2005).

15 See infra Part II.

16 Importantly, a growing number of multiregional input-output databases contain detailed information on the greenhouse gas footprint of traded goods and effective carbon rates in different sectors. See, e.g., Martin van de Lindt et al., Carbon Emission Mitigation by Consumption-Based Accounting and Policy: Final Project Report, at 28 (2017); Kirsten S. Wiebe, Simon Gandy & Christian Lutz, Policies and Consumption-Based Carbon Emissions from a Top-Down and a Bottom-Up Perspective, 7 Low Carbon Econ. 21, 23 (2016); Kirsten S. Wiebe & Norihiko Yamano, Estimating CO 2 Emissions Embodied in Final Demand and Trade Using the OECD ICIO 2015 (OECD Science, Technology and Industry Working Papers 2016/05, 2016). Ongoing activities such as the recent Carbon Loophole project likewise improve transparency of carbon embedded in traded goods. See Daniel Moran, Ali Hasanbeigi & Cecilia Springer, The Carbon Loophole in Climate Policy: Quantifying the Embodied Carbon in Traded Products (2018), available at https://buyclean.org/media/2016/12/The-Carbon-Loophole-in-Climate-Policy-Final.pdf.

17 United Nations Framework Convention on Climate Change, Art. 3(5), May 9, 1992, S. Treaty Doc. No. 102-38, 1771 UNTS 107 [hereinafter UNFCCC].

18 Paris Agreement, supra note 1, Art. 21(1).

19 Id. Art. 2(1).

20 Id. Art. 4(1).

21 UNFCC, supra note 17, Art. 3(5).

22 Kyoto Protocol, supra note 5, Art. 2(3).

23 Office of the U.S. Trade Rep., Environmental Goods Agreement, at https://ustr.gov/trade-agreements/other-initiatives/environmental-goods-agreement.

24 Paris Agreement, supra note 1, Art. 6.2, 6.4.

25 These examples are drawn from: Susanne Droege, Harro van Asselt, Kasturi Das & Michael Mehling, The Trade System and Climate Action: Ways Forward Under the Paris Agreement, 13 S.C. J. Int'l L. & Bus. 195, 219 (2017); Brandi, supra note 8; and Rana Elkahwagy, Vandana Gyanchandani & Dario Piselli, UNFCCC Nationally Determined Contributions: Climate Change and Trade, TradeLab (2017).

26 Somini Sengupta, Melissa Eddy, Chris Buckley & Alissa J. Rubin, As Trump Exits Paris Agreement, Other Nations Are Defiant, N.Y. Times (June 1, 2017). At the July 2017 meeting of the Group of 20 (G20) in Hamburg, the United States also found itself largely isolated. While the G20 Declaration took note of the Trump administration's decision to withdraw from the Paris Agreement, the rest of the G20 confirmed that the Agreement is “irreversible” and reiterated their commitment both to the deal and to past pledges related to climate finance for developing countries. G20, G20 Leaders’ Declaration, Shaping an Interconnected World, at 10 (July 7–8, 2017).

27 See Coral Davenport, Diplomats Confront New Threat to Paris Climate Pact: Donald Trump, N.Y. Times (Nov. 18, 2016).

28 In its intended NDC, Mexico included a conditional emissions reduction pledge of 40%, subject to, inter alia, the creation of a BCA. See Mexico, Intended Nationally Determined Contribution, at 2 (Mar. 30, 2015), available at http://www4.unfccc.int/submissions/INDC/Published%20Documents/Mexico/1/MEXICO%20INDC%2003.30.2015.pdf.

29 See Ben Garside, Canada's Environment Minister Calls for Consideration of Carbon Border Measures, Carbon Pulse (Oct. 11, 2017).

30 Government of France, Initiative pour l'Europe: Discours d'Emmanuel Macron pour une Europe souveraine, unie, démocratique (Sept. 28, 2017), at http://www.elysee.fr/declarations/article/initiative-pour-l-europe-discours-d-emmanuel-macron-pour-une-europe-souveraine-unie-democratique (“Il nous faut aussi, pour réussir cette stratégie, assurer pour nos industriels les plus exposés à la mondialisation d’être sur un pied d’égalité avec les entreprises, les industries concurrentes venant d'autres régions du monde qui n'ont pas les mêmes exigences environnementales. C'est pour cela qu'il nous faut une taxe aux frontières de l'Europe sur le carbone, c'est indispensable.”).

31 See infra Part VI.F.

32 WTO, Ministerial Declaration and Decisions of 19 December 2015, para. 30, WTO Doc. WT/MIN(15)/DEC (2015).

33 WTO, Regional Trade Agreements: Facts and Figures (Jan. 4, 2019), at https://www.wto.org/english/tratop_e/region_e/regfac_e.htm.

34 Arthur Beesley, TTIP Talks Headed for a Lengthy Delay, Fin. Times (Sept. 23, 2016). Negotiations on two such agreements, the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP), were impacted by the outcome of the 2016 U.S. elections. Negotiations on the TPP continued without the United States, resulting in signature of a Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in March 2018, whereas the TTIP was abandoned for the time being. See Matthew P. Goodman, From TPP to CPTPP, Ctr. Strategic & Int'l Stud. (Mar. 8, 2018); Richard Bravo & Julia Chatterley, Trump is Willing to Reopen TTIP Amid EU-US Trade Dispute, Ross Says, Bloomberg (Mar. 29, 2018).

35 Paul McClean, After Brexit: The UK Will Need to Renegotiate at Least 759 Treaties, Fin. Times (May 30, 2017).

36 Organisation for Economic Co-operation and Development (OECD), Making Trade Work for All, at 4–7 (2017).

37 See Bruce Stokes, The Public's Mixed Views on Trade (presentation at the OECD Trade Communications Conference, Paris, France, Apr. 23, 2017), available at http://www.oecd.org/trade/events/trade-communications-conference-25-april-2018.htm.

38 Corey R. Lewandowski, Trump's Pro-American Trade Policy Is Just What He Promised, Hill (Mar. 7, 2018).

39 See Office of the U.S. Trade Rep. Press Release, President Trump Approves Relief for U.S. Washing Machine and Solar Cell Manufacturers (Jan. 22, 2018); White House Press Release, Presidential Proclamation on Adjusting Imports of Steel into the United States (Mar. 8, 2018); Office of the U.S. Trade Rep. Press Release, Under Section 301 Action, USTR Releases Proposed Tariff List on Chinese Products (Apr. 3, 2018). In doing so, the administration has exercised statutory authorities under the Trade Expansion Act, § 232, Pub. L. No. 87–794, 19 U.S.C., ch. 7 (1962), and the U.S. Trade Act § 301, Pub. L. No. 93–618, 19 U.S.C. § 2411 (1974).

40 Ana Swanson, U.S. and China Brace for Impact as Tariff Deadlines Expire, N.Y. Times, July 5, 2018, at B1 (citing a statement by the Chinese Ministry of Commerce, according to which the United States “has launched the biggest trade war in economic history so far”); see also Steve Holland & David Lawder, Trade Dispute Escalates as Trump Threatens $100 Billion More in China Tariffs, Reuters (Apr. 5, 2018).

41 For instance, China swiftly responded to the tariff increases with commensurate, “dollar-for-dollar” tariffs on U.S. goods, whereupon the U.S. administration has threatened to impose additional tariffs on $200 billion worth of Chinese goods. See Swanson, supra note 40.

42 Michael A. Mehling, Harro van Asselt, Kasturi Das & Susanne Droege, Beat Protectionism and Emissions at a Stroke, 559 Nature 321 (2018).

43 Julia Reinaud, Issues Behind Competitiveness and Carbon Leakage: Focus on Heavy Industry, IEA, at 3–4 (2008).

44 Ward et al., supra note 10, at 14–15.

45 See generally Joseph E. Aldy, Frameworks for Evaluating Policy Approaches to Address the Competitiveness Concerns of Mitigating Greenhouse Gas Emissions, Harvard Project on Climate Agreements (2016).

46 This was proposed, for instance, by Nobel Prize Laureate Joseph Stiglitz. See Joseph E. Stiglitz, A New Agenda for Global Warming, 3 Economists’ Voice 3 (2006).

47 Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action 6 (1990).

48 William Nordhaus, Climate Clubs: Overcoming Free-Riding in International Climate Policy, 105 Am. Econ. Rev. 1339, at 1347, 1367 (2015).

49 See generally Aaron Cosbey et al., Developing Guidance for Implementing Border Carbon Adjustments: Lessons, Cautions, and Research Needs from the Literature, 13 Rev. Envtl. Econ. & Pol'y 3 (2019).

50 See Walden Bello, The Threat of Green Protectionism, 1 Bridges 2 (July 1, 1997); see also Peter Holmes, Tom Reilly & Jim Rollo , Border Carbon Adjustments and the Potential for Protectionism, 11 Climate Pol'y 883 (2011).

51 See also infra Part V.A.

52 Gary Clyde Hufbauer & Jisun Kim, The World Trade Organization and Climate Change: Challenges and Options 6 (Peterson Institute for International Economics Working Paper 09-9, 2009), available at https://piie.com/sites/default/files/publications/wp/wp09-9.pdf.

53 Aaron Cosbey, Border Carbon Adjustment, in Trade and Climate Change: Issues in Perspective 19–20 (Aaron Cosbey ed., 2008).

54 Carolyn Fischer & Alan K. Fox, Comparing Policies to Combat Emissions Leakage: Border Carbon Adjustments versus Rebates, 64 J. Envtl. Econ. & Mgmt. 199, 214 (2012).

55 Kortum & Weisbach, The Design of Border Adjustments for Carbon Prices, supra note 13, at 422.

56 See infra Part VI.

57 See infra Part IV.B.

58 See, e.g., Jacques Hartmann, A Battle for the Skies: Applying the European Emissions Trading System to International Aviation, 82 Nord. J. Int'l L. 187 (2013).

59 Case C-366/10, Air Transport Ass'n of Am. & Others v. Sec'y of State for Energy and Climate Change, para. 125 (2011).

60 See Directive 2008/101, of the European Parliament and of the Council of 19 November 2008 Amending Directive 2003/87/EC so as to Include Aviation Activities in the Scheme for Greenhouse Gas Emission Allowance Trading Within the Community, Art. 25a, 2008 OJ (L 8) 3.

61 See generally van de Lindt et al., Carbon Emission Mitigation by Consumption-Based Accounting and Policy, supra note 16.

62 Neuhoff et al., Inclusion of Consumption of Carbon Intensive Materials in Emissions Trading, supra note 12, at 4.

63 2017 Cal. Stat. ch. 816.

64 Elena Dawkins & Simon Croft, Consumption-Based Accounting Reveals Global Redistribution of Carbon Emissions, Stockholm Env't Inst. 1 (2017) (explaining data requirements for consumption-based emissions accounting).

65 Neuhoff et al., Inclusion of Consumption of Carbon Intensive Materials in Emissions Trading, supra note 12, at 11.

66 See, e.g., Dominique Bureau, Lionel Fontagné & Katheline Schubert, Trade and Climate: Towards Reconciliation, Notes du conseil d'analyse économique, Conseil d'analyse économique 11 (2017).

67 See generally James M. Buchanan, An Economic Theory of Clubs, 32 Economica 1 (1965).

68 See generally Nordhaus, Climate Clubs, supra note 48, at 1339 (noting that without sanctions against non-participants, there are no stable coalitions other than those with minimal abatement. By contrast, a regime with small trade penalties on nonparticipants, a climate club, can induce a large stable coalition with high levels of abatement).

69 Cary Coglianese & Jocelyn D'Ambrosio, Policymaking Under Pressure: The Perils of Incremental Responses to Climate Change, 45 Conn. L. Rev. 1411 (2008).

70 Christoph Böhringer, Edward J. Balistreri & Thomas F. Rutherford, The Role of Border Carbon Adjustment in Unilateral Climate Policy: Overview of an Energy Modeling Forum Study (EMF 29), 34 Energy Econ. Supp. 2, S97 (2012).

71 Philippe Quirion & Damien Demailly, Changing the Allocation Rules in the EU ETS: Impact on Competitiveness and Economic Efficiency (Fondazione Eni Enrico Mattei Working Paper 2008.89, 2008), available at http://www.feem.it/userfiles/attach/Publication/NDL2008/NDL2008-089.pdf; Jean-Pierre Ponssard & Neil Walker, EU Emissions Trading and the Cement Sector: A Spatial Competition Analysis, 8 Climate Pol'y 467 (2008).

72 Yihsu Chen, Does a Regional Greenhouse Gas Policy Make Sense? A Case Study of Carbon Leakage and Emissions Spillover, 31 Energy Econ. 667, 673 (2009).

73 Rahel Aichele & Gabriel Felbermayr, Kyoto and Carbon Leakage: An Empirical Analysis of the Carbon Content of Bilateral Trade, 97 Rev. Econ. & Stat. 104 (2015); Grégoire Garsous & Tomasz Kozluk, Foreign Direct Investment and the Pollution Haven Hypothesis: Evidence from Listed Firms (OECD Economics Department Working Papers No. 2017/1379, 2017); but see Arik Levinson & M. Scott Taylor, Unmasking the Pollution Haven Effect, 49 Int'l Econ. Rev. 223 (2008).

74 Intergovernmental Panel on Climate Change (IPCC), Climate Change 2014: Mitigation of Climate Change 1163 (Ottmar Edenhofer et al. eds., 2014).

75 Balistreri, Böhringer & Rutherford, Carbon Policy and the Structure of Global Trade, supra note 2, at 194.

76 Hans Bolscher et al., Carbon Leakage Evidence Project: Factsheets for Selected Sectors (2013), available at https://ec.europa.eu/clima/sites/clima/files/ets/allowances/leakage/docs/cl_evidence_factsheets_en.pdf.

77 See de Bruyn, Schep & Cherif, Calculation of Additional Profits supra note 12; Neuhoff et al., Inclusion of Consumption of Carbon Intensive Materials in Emissions Trading, supra note 12.

78 Branger, Frédéric & Quirion, Philippe, Would Border Carbon Adjustments Prevent Carbon Leakage and Heavy Industry Competitiveness Losses? Insights from a Meta-Analysis of Recent Economic Studies, 99 Ecological Econ. 29 (2014).

79 Böhringer, Balistreri & Rutherford, The Role of Border Carbon Adjustment, supra note 70, at S102.

80 Onno Kuik & Marjan Hofkes, Border Adjustment for European Emissions Trading: Competitiveness and Carbon Leakage, 38 Energy Pol'y 1741 (2010).

81 Winchester, Niven S., Paltsev, Sergey & Reilly, John, Will Border Carbon Adjustments Work?, 11 B.E. J. Econ. Analysis & Pol'y 7 (2011).

82 Christoph Böhringer, Jared C. Carbone & Thomas F. Rutherford, Unilateral Climate Policy Design: Efficiency and Equity Implications of Alternative Instruments to Reduce Carbon Leakage, 34 Energy Econ. 208 (2012); Christoph Böhringer, Carolyn Fischer & Knut Einar Rosendahl, Cost-Effective Unilateral Climate Policy Design: Size Matters, 67 J. Envtl. & Econ. Mgmt. 318 (2014); Stéphanie Monjon & Philippe Quirion, Addressing Leakage in the EU ETS: Border Adjustment or Output-Based Allocation? 70 Ecological Econ. 1957 (2011).

83 Fischer & Fox, Comparing Policies, supra note 54.

84 Jean-Marc Burniaux & Joaquim Oliveira Martins, Carbon Emission Leakages: A General Equilibrium View (OECD Economics Department Working Papers No. 242, 2000), at http://www.oecd-ilibrary.org/economics/carbon-emission-leakages_410535403555.

85 See infra Part VI.B.5.

86 Among these sectors, the most prominent example is the cement industry, which was therefore classified as a source of carbon leakage in the EU (see also Part IV.A). Production cost differentials caused by uneven climate policies can be a major factor promoting international trade in clinker and cement.

87 Burniaux, Jean-Marc, Chateau, Jean & Duval, Romain, Is There a Case for Carbon-Based Border Tax Adjustment? An Applied General Equilibrium Analysis, 45 Applied Econ. 2231 (2012); Böhringer, Carbone & Rutherford, Cost-Effective Unilateral Climate Policy Design, supra note 82.

88 See supra Part III.A.

89 Christoph Böhringer, Jared C. Carbone & Thomas F. Rutherford, The Strategic Value of Carbon Tariffs, 8 Am. Econ. J.: Econ. Pol'y 28 (2016).

90 Böhringer, Carbone & Rutherford, Unilateral Climate Policy Design, supra note 82. See, however, Madanmohan Ghosh, Deming Luo, Muhammad Shahid Siddiqui & Yunfa Zhu, Border Tax Adjustments in the Climate Policy Context: CO 2 Versus Broad-Based GHG Emission Targeting, 34 Energy Econ. S2 154 (2012) (arguing that including additional greenhouse gases, such as methane, nitrous oxides, and fluorinated gases, as well as additional sectors, such as agriculture or waste, can reduce potential welfare losses under a BCA).

91 Monjon & Quirion, Addressing Leakage in the EU ETS, supra note 82.

92 Babiker, Mustafa H. & Rutherford, Thomas F., The Economic Effects of Border Measures in Subglobal Climate Agreements, 26 Energy J. 99 (2005).

93 Böhringer, Carbone & Rutherford, The Strategic Value of Carbon Tariffs, supra note 89.

94 Branger & Quirion, Would Border Carbon Adjustments Prevent Carbon Leakage, supra note 78.

95 Böhringer, Balistreri & Rutherford, The Role of Border Carbon Adjustment, supra note 70; Fischer & Fox, Comparing Policies, supra note 54.

96 Warwick J. McKibbin, Adele C. Morris, Peter J. Wilcoxen & Weifeng Liu, The Role of Border Adjustments in a U.S. Carbon Tax, 9 Climate Change Econ. 1840011-1 (2018).

97 See infra Part VI.

98 See supra Part II.

99 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 Establishing a Scheme for Greenhouse Gas Emissions Allowance Trading Within the Community and Amending Council Directive 96/61/EC, 2003 OJ (L 275) 32.

100 Id. Art. 9.

101 Id. Art. 10–10c.

102 Id. Art. 10, 10c(2).

103 See van Asselt, Harro & Brewer, Thomas, Addressing Competitiveness and Leakage Concerns in Climate Policy: An Analysis of Border Adjustment Measures in the US and the EU, 38 Energy Pol'y 42, 47–49 (2010) (discussing the rise of concerns about carbon leakage in the EU, as well as the negotiations on Directive 2009/29/EC).

104 Draft Commission Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC (Dec. 10, 2007, version 14, on file with authors).

105 Id. Art. 29(1).

106 Id. Art. 29(2).

107 Id. Art. 29(6).

108 Commission Proposal for a Directive of the European Parliament and of the Council Amending Directive 2003/87/EC so as to Improve and Extend the Greenhouse Gas Emission Allowance Trading System of the Community, COM(2008) 30 final (Jan. 23, 2008).

109 The third trading phase was put in place through Directive 2009/29/EC of the European Parliament and of the Council Amending Directive 2003/87/EC so as to Improve and Extend the Greenhouse Gas Emission Allowance Trading Scheme of the Community, 2008 OJ (L 140) 63.

110 Directive 2003/87/EC, supra note 99, Art. 10b.

111 Id. Art. 10b(1).

112 Directive 2009/29/EC, supra note 109, pmbl. para. 25.

113 Government of France, Non-Paper: Mechanism for the Inclusion of Importers in the EU Emissions Quota Trading Scheme (unpublished manuscript on file with authors, 2008).

114 Id.

115 Id.

116 Id.

117 Id.

118 Id.

119 Carbon Tariffs Falling out of Favour as Trade War Looms, EurActiv (July 28, 2009), at https://www.euractiv.com/section/development-policy/news/carbon-tariffs-falling-out-of-favour-as-trade-war-looms.

120 Government of France, Non-Paper: Carbon Inclusion Mechanism for the Cement Sector (unpublished manuscript on file with authors, 2016).

121 Id.

122 Id.

123 Id.

124 Id.

125 European Parliament Committee on the Environment, Public Health and Food Safety, Report on the Proposal for a Directive of the European Parliament and of the Council Amending Directive 2003/87/EC to Enhance Cost-Effective Emission Reductions and Low-Carbon Investments (COM(2015)0337 – C8-0190/2015 – 2015/0148(COD)), Amendment 12.

126 See European Parliament Adopts Draft Reform of Carbon Market Post-2020, Reuters (Feb. 15, 2017).

127 Frederic Simon, Carbon Market Reform Vote Puts EU Cement Sector in the Spotlight, EurActiv (Feb. 10, 2017), at https://www.euractiv.com/section/climate-environment/news/carbon-market-reform-vote-puts-eu-cement-sector-in-the-spotlight.

128 Byrd-Hagel Resolution, S. Res. 98, 105th Cong. (1997).

129 See White House Press Release, Statement by President Trump on the Paris Climate Accord (June 1, 2017).

130 Andrew W. Shoyer, Comment, in Climate Change, Trade, And Competitiveness: Is a Collision Inevitable? 60 (Lael Brainard & Isaac Sorkin eds., 2009).

131 See also van Asselt & Brewer, Addressing Competitiveness and Leakage Concerns in Climate Policy, supra note 103.

132 S. 1766, 110th Cong. (2007).

133 S. 2191, 110th Cong. (2007).

134 H.R. 2454, 111th Cong. (2009).

135 Trevor Houser, Rob Bradley, Britt Childs, Jacob Werksman & Robert Heilmayr, Leveling the Carbon Playing Field: International Competition and U.S. Climate Policy Design 39 (2008).

136 International Aspects of a Climate Change Cap and Trade Program: Hearing Before the Sen. Committee on Finance, 110th Cong. 47, at 12–13 (2008) (statement of Jennifer A. Haverkamp, Senior Counsel, Envtl. Defense Fund).

137 H.R. 6463, 115th Cong. (2018).

138 Id., Sec. 9912(2).

139 Id., Sec. 9911(a)(1).

140 James A. Baker, III et al., The Conservative Case for Carbon Dividends, Conservative Leadership Council 1 (2017), available at https://www.clcouncil.org/media/TheConservativeCaseforCarbonDividends.pdf.

141 Id.

142 Id. at 4.

143 David Bailey & David Bookbinder, A Winning Trade: How Replacing the Obama-Era Climate Regulations with a Carbon Dividends Program Starting at $40/Ton Would Yield Far Greater Emissions Reductions, Climate Leadership Council 5 (2017), available at https://www.clcouncil.org/wp-content/uploads/2017/02/A_Winning_Trade.pdf.

144 Recognizing the Duty of the Federal Government to Create a Green New Deal, Sec. 4(k), H.R. Res. 109, 116th Cong. (2019).

145 See supra Part II.

146 U.S. Energy Inform. Admin., Energy-Related Carbon Dioxide Emissions by State, 2005-2016, at 1 (2019), available at https://www.eia.gov/environment/emissions/state/analysis/pdf/stateanalysis.pdf.

147 A.B. 32, 2006 Leg. (Cal. 2006) (codified at Cal. Health & Safety Code §§ 38500–38599 (West 2011)).

148 Cal. Code Regs. tit. 17, §§ 95800–96023 (2011).

149 A.B. 32, 2006 Leg. (Cal. 2006) (codified at Cal. Health & Safety Code §§ 38500–38599, § 38562(b)(8) (West 2011)).

150 Cal. Air Res. Bd., Res. 10–42 (Dec. 16, 2010).

151 Cal. Air Res. Bd., California Cap-and-Trade Program: Potential Border Carbon Adjustment for the Cement Sector (Feb. 5, 2014), at https://www.arb.ca.gov/cc/capandtrade/meetings/020514/border-carbon-adjustment.pdf.

152 Cal. Code Regs. tit. 17, § 95852(b): “First Deliverers of Electricity. A first deliverer of electricity covered under sections 95811(b) and 95812(c)(2) has a compliance obligation for every metric ton of CO2e emissions calculated pursuant to section 95852(b)(1) for which a positive or qualified positive emissions data verification statement is issued pursuant to MRR, or for which there are assigned emissions, when such emissions are from a source in California or in a jurisdiction where a GHG emissions trading system has not been approved for linkage by the Board pursuant to Subarticle 12.”

153 Cal. Code Regs. tit. 17, § 95812(c)(2)(B), reads: “Electricity importers. The applicability threshold for an electricity importer is based on the annual emissions from each of the electricity importer's sources of delivered electricity. All emissions reported for imported electricity from specified sources of electricity that emit 25,000 metric tons or more of CO2e per year are considered to be above the threshold.” Section 95812(d)(2) specifies that: “The threshold for an electricity importer of specified source of electricity is zero metric tons of CO2e per year and for unspecified sources is zero MWhs per year as of January 1st 2015.”

154 Cal. Code Regs. tit. 17, § 95802(a)(338), defines resource shuffling as: “any plan, scheme, or artifice undertaken by a First Deliverer of Electricity to substitute electricity deliveries from sources with relatively lower emissions for electricity deliveries from sources with relatively higher emissions to reduce its emissions compliance obligation.”

155 Cal. Code Regs. tit. 17, § 95852(b)(2) reads: “Resource shuffling is prohibited and is a violation of this article.”

156 S.B. 775, 2017–2018 Leg. (Cal. 2017).

157 A.B. 398, 2017–2018 Leg. (Cal. 2017), (codified at Cal. Health & Safety Code §§ 38500–38599 (West 2017)).

158 Id., § 38562(c)(2)(I).

159 See, e.g., India Threatens WTO Case Against Proposed “Carbon Border Taxes, Bridges (Mar. 31, 2010).

160 See, e.g., Ross Astoria, Design of an International Trade Law Compliant Carbon Border Tax Adjustment, Ariz. J. Envtl. L. & Pol'y 491 (2015); Javier de Cendra, Can Emissions Trading Schemes Be Coupled with Border Tax Adjustments? An Analysis Vis-à-Vis WTO Law, 15 Rev. Eur. Comm. & Int'l Envtl. L. 131 (2006); Kasturi Das, Can Border Carbon Adjustments Be WTO-Legal?, 8 Manchester J. Int'l Econ. L. 65 (2011); Gavin Goh, The World Trade Organization, Kyoto and Energy Taxes at the Border, 38 J. World Trade 395 (2004); Kateryna Holzer, Carbon-Related Border Adjustment and WTO Law (2014); Roland Ismer & Karsten Neuhoff, Border Tax Adjustment: A Feasible Way to Support Stringent Emission Trading, 24 Eur. J. L. & Econ. 137 (2007); Joost Pauwelyn, US Federal Climate Policy and Competitiveness Concerns: The Limits and Options of International Trade Law (Nicholas Institute Working Paper 07-02, Apr. 2007); Joost Pauwelyn, Carbon Leakage Measures and Border Tax Adjustments Under WTO Law, in Research Handbook on Environment, Health and the WTO 448 (Denise Prevost & Geert Van Calster eds., 2013); Ludivine Tamiotti, The Legal Interface Between Carbon Border Measures and Trade Rules, 11 Climate Pol'y 1202 (2011); Joel Trachtman, WTO Law Constraints on Carbon Credit Mechanisms and Export Border Tax Adjustments, in Research Handbook on Climate Change and Trade Law 109 (Panagiotis Delimatsis ed., 2017).

161 General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, 55 UNTS 194, as incorporated in General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 UNTS 187 [hereinafter GATT].

162 Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 UNTS 14 [hereinafter ASCM].

163 See GATT, Border Tax Adjustments: Report of the Working Party, L/3464, BISD 18S/97 (Dec. 2, 1970) [hereinafter Working Party Report].

164 OECD, International VAT/GST Guidelines: Guidelines on Neutrality, paras. 1, 5 (2011).

165 Working Party Report, supra note 163. The Working Party was constituted to understand the scope and application of BTAs, and the report was adopted by the GATT Parties in 1970.

166 The Working Party Report cites a 1968 OECD report definition of BTAs “as any fiscal measures which put into effect, in whole or in part, the destination principle (i.e. which enable exported products to be relieved of some or all of the tax charged in the exporting country in respect of similar domestic products sold to consumers on the home market and which enable imported products sold to consumers to be charged with some or all of the tax charged in the importing country in respect of similar domestic products).” See Working Party Report, supra note 163, para.4.

167 GATT, supra note 161, Art. II:1(b).

168 Id. Art. II:2(a).

169 Appellate Body Report, China—Measures Affecting Imports of Automobile Parts, para. 161, WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R (Jan. 12, 2009).

170 GATT, supra note 161, Art. III:2.

171 Working Party Report, supra note 163, para. 14.

172 Id., para. 15.

173 GATT Panel Report, United States—Taxes on Petroleum and Certain Imported Substances, BISD 34S/136 (June 17, 1987).

174 Committee on Trade and Environment, Taxes and Charges for Environmental Purposes—Border Tax Adjustment, para. 70, WT/CTE/W/47 (May 2, 1997).

175 Holzer notes the literature is divided on the issue, but nonetheless finds that “a carbon tax can be viewed as one that applies to the product, and is therefore adjustable at the border.” Holzer, Carbon-Related Border Adjustment, supra note 160, at 103.

176 However, the carbon tax could arguably be based on the carbon content of a product, as long as it is linked to the product itself. See Jennifer Hillman, Changing Climate for Carbon Taxes: Who's Afraid of the WTO? 6 (German Marshall Fund Climate and Energy Paper Series, 2013) (“While the amount of the tax would reflect the amount of carbon dioxide emitted during the production of the product, because it would be assessed on the product itself, the tax should be considered an indirect tax fully eligible for border adjustment for imports.”).

177 See, e.g., de Cendra, Can Emissions Trading Schemes be Coupled with Border Tax Adjustments?, supra note 160, at 135–36.

178 See, e.g., Jos Sijm, Karsten Neuhoff & Yihsu Chen, CO 2 Cost Pass-Through and Windfall Profits in the Power Sector, 6 Climate Pol'y 50 (2006).

179 GATT, supra note 161, Arts. III:1, III:2.

180 Aside from the “like products” question in GATT Article III, the issue also arises in the context of Article I. See infra Part V.1.A.iii.

181 Appellate Body Report, European Communities—Measures Affecting Asbestos and Asbestos-Containing Products, para. 101, WT/DS135/AB/R (Apr. 5, 2001) [hereinafter AB Report, EC —Asbestos].

182 Working Party Report, supra note 163, para. 18. See also Appellate Body Report, Canada—Certain Measures Concerning Periodicals, WT/DS31/AB/R 21–22 (July 30, 1997).

183 Working Party Report, supra note 163, para. 18.

184 Id.

185 Appellate Body Report, Japan—Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R 22 (Oct. 4, 1996) [hereinafter AB Report, Japan—Alcoholic Beverages II].

186 AB Report, EC —Asbestos, supra note 181, paras. 109, 120.

187 Id., para. 102.

188 AB Report, Japan—Alcoholic Beverages II, supra note 185, at 19–21.

189 Pauwelyn, Carbon Leakage Measures, supra note 160, at 489.

190 AB Report, Japan—Alcoholic Beverages II, supra note 185, at 19–20, 25–26.

191 EC —Asbestos, supra note 181, para. 146 (“for any given cement-based product, the tariff classification of the product is the same”).

192 Id., para. 122. In the same ruling, the AB said that “evidence relating to health risks may be relevant in assessing the competitive relationship in the marketplace between allegedly ‘like’ products,” thus indicating that health risks may generally play a role in the “like products” analysis. Id., para. 115. Note that these findings were made in the context of GATT Article III:4, which has a slightly broader scope than Article III:2.

193 AB Report, Japan—Alcoholic Beverages II, supra note 185, at 23.

194 Ismer & Neuhoff, Border Tax Adjustment, supra note 160, at 147.

195 GATT, supra note 161, Art. III:2, second sentence, and ad Art. III:2.

196 AB Report, Korea—Taxes on Alcoholic Beverages, para. 118, WT/DS75/R, WT/DS84/R (Jan. 18, 1999).

197 AB Report, Japan—Alcoholic Beverages II, supra note 185, at 25.

198 Appellate Body Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector, para. 5.63, WT/DS412/AB/R, WT/DS426/AB/R (May 6, 2013).

199 GATT, supra note 161, ad Art. III:2 (emphasis added).

200 AB Report, Japan—Alcoholic Beverages II, supra note 185, at 27.

201 Holzer, Carbon-Related Border Adjustment, supra note 160, at 133.

202 GATT, supra note 161, Art. III:1.

203 AB Report, Japan—Alcoholic Beverages II, supra note 185, at 30.

204 Appellate Body Report, Chile—Taxes on Alcoholic Beverages, para. 71, WT/DS87/AB/R, WT/DS87/AB/R (Dec. 13, 1999) (“we consider that a measure's purposes, objectively manifested in the design, architecture and structure of the measure, are intensely pertinent to the task of evaluating whether or not that measure is applied so as to afford protection to domestic production”).

205 According the AB in EC—Asbestos, “the ‘accordion’ of ‘likeness’ stretches in a different way in Article III:4” compared to Article III:2. EC —Asbestos, supra note 181, para. 96. However, the AB suggested that the criteria for “likeness” used for Article III:2 may also be applied to Article III:4. Id., para. 103.

206 Id., para. 103.

207 GATT, supra note 161, Art. III:4.

208 United States—Measures Affecting the Production and Sale of Clove Cigarettes, para. 7.268, WT/DS406/R (Sept. 2, 2011). See also Holzer, Carbon-Related Border Adjustment, supra note 160, at 135–36.

209 GATT, supra note 161, Art. I:1. The “like products” test under Article I is similar to the “like products” analysis outlined above. See Appellate Body Report, United States—Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products (Recourse to Article 21.5 of the DSU by Mexico), para. 7.281, WT/DS381/AB/RW (Nov. 20, 2015).

210 This would follow the precedent set in GATT Panel Report, Belgian Family Allowances (Allocations Familiales), para. 3, BISD 1S/59 (Nov. 7, 1952) (with the Panel finding that the “Belgian legislation would have to be amended insofar as it introduced a discrimination between countries having a given system of family allowances and those which had a different system or no system at all”).

211 Pauwelyn, Carbon Leakage Measures, supra note 160, at 494.

212 Panel Report, Indonesia—Certain Measures Affecting the Automobile Industry, para. 14.143, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R (July 2, 1998).

213 In Canada—Autos, the Panel referred to “conditions that entailed different treatment of imported products depending upon their origin,” suggesting that if conditions do not relate to the country of origin, they may be permissible. Panel Report, Canada—Certain Measures Affecting the Automotive Industry, para. 10.25, WT/DS139/R (Feb. 11, 2000). See Charles Benoit, Picking Tariff Winners: Non-product Related PPMs and DSB Interpretations of Unconditionally Within Article I:1, 42 Geo. J. Int'l L. 583, 598 (2011) (discussing the jurisprudence in the context of an analysis of whether life-cycle assessments of ethanola form of non-product-related PPM—are permissible under Article I). See also Pauwelyn, Carbon Leakage Measures, supra note 160, at 495.

214 GATT Secretariat, Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries, para. 1, BISD 26S/191 (1980) [hereinafter Enabling Clause]. This applies, inter alia, to “[s]pecial treatment on the least developed among the developing countries in the context of any general or specific measures in favour of developing countries.” Id., para. 2(d). However, such treatment of Least Developed Countries presupposes that the treatment of all developing countries will be favorable, which in the context of a BCA is “a tough bar to clear.” Aaron Cosbey et al., A Guide for the Concerned: Guidance on the Elaboration and Implementation of Border Carbon Adjustment 12 (Entwined Policy Report No. 3, 2012), available at http://www.iisd.org/pdf/2012/bca_guidance.pdf.

215 Enabling Clause, supra note 214, para. 8.

216 Id., para. 3(a).

217 Id., para. 3(c).

218 European Communities—Conditions for the Granting of Tariff Preferences to Developing Countries, para. 164, WT/DS246/AB/R (Apr. 20, 2004).

219 Arguably, the public morals exception of Article XX(a) could also be invoked. In EC—Seals, the AB accepted that an EU regulation prohibiting imports of seal products due to animal welfare concerns was indeed “necessary to … protect[ ]public morals.” Appellate Body Report, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, para. 5.201-02, WT/DS400/AB/R, WT/DS401/AB/R (May 22, 2014) [hereinafter AB Report, EC—Seals]. Likewise, it could be argued that BCAs can be justified with reference to public morals. This would “basically disconnect[] the measure from geographical links to the territory of the importing country except for the mere fact of importation of products to the country imposing a regulation.” Thomas Cottier & Tetyana Payosova, Common Concern and the Legitimacy of the WTO in Dealing with Climate Change, in Research Handbook on Climate Change and Trade Law 28 (Panagiotis Delimatsis ed., 2017).

220 See, e.g., Intergovernmental Panel on Climate Change (IPCC), IPCC Special Report on the Impacts of Global Warming of 1.5 °C above Pre-industrial Levels and Related Global Greenhouse Gas Emission Pathways, in the Context of Strengthening the Global Response to the Threat of Climate Change, Sustainable Development, and Efforts to Eradicate Poverty (2018) [hereinafter IPCC, 1.5 °C Special Report].

221 Panel Report, Brazil—Certain Measures Concerning Taxation and Charges, para. 7.880, WT/DS472/R, WT/DS497/R (Aug. 30, 2017). The finding in this case was made mainly with reference to the impacts of transport emissions on air quality, not to the climate or atmosphere.

222 See Tracey Epps & Andrew Green, Reconciling Trade and Climate: How the WTO Can Help Address Climate Change 144–47 (2010); Tamiotti, The Legal Interface Between Carbon Border Measures and Trade Rules, supra note 160, at 1207–08; Pauwelyn, Carbon Leakage Measures, supra note 160, at 450–52; Holzer, Carbon-Related Border Adjustment, supra note 160, at 156.

223 Appellate Body Report, Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef, para. 164, WT/DS161/AB/R, WT/DS169/AB/R (Jan. 10, 2001) [hereinafter AB Report, Korea —Beef].

224 Id., para. 161.

225 Appellate Body Report, Brazil—Measures Affecting Imports of Retreaded Tyres, paras. 151, 210, WT/DS332/AB/R (Dec. 3, 2007) [hereinafter AB Report, Brazil—Retreaded Tyres].

226 Id., para. 145 (emphasis added).

227 Holzer, Carbon-Related Border Adjustment, supra note 160, at 152.

228 AB Report, Brazil—Retreaded Tyres, supra note 225, para. 151.

229 AB Report, EC —Asbestos, supra note 181, para. 172 (referring to AB Report, Korea—Beef, supra note 223, para. 162.

230 See, e.g., IPCC, 1.5 °C Special Report, supra note 220.

231 AB Report, EC —Asbestos, supra note 181, para. 172 (emphasis added).

232 Appellate Body Report, United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services, para. 309, WT/DS285/AB/R (Apr. 20, 2005).

233 See Luca Rubini & Ingrid Jegou, Who'll Stop the Rain? Allocating Emissions Allowances for Free: Environmental Policy, Economics, and WTO Subsidy Law, 1 Trans. Envtl. L. 325 (2012).

234 AB Report, Brazil—Retreaded Tyres, supra note 225, para. 172.

235 GATT, supra note 161, Art. XX(g) (emphasis added).

236 Id.

237 This term “must be read by a treaty interpreter in the light of contemporary concerns of the community of nations about the protection and conservation of the environment.” Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products, para. 129, WT/DS58/AB/R (Nov. 6, 1998) [hereinafter AB Report, U.S.—Shrimp].

238 Panel Report, United States—Standards for Reformulated and Conventional Gasoline, para. 6.37, WT/DS2/R (May 20, 1996), as modified by the Appellate Body Report, WT/DS2/AB/R (May 20, 1996) [hereinafter AB Report, U.S.—Gasoline].

239 AB Report, U.S.—Shrimp, supra note 237, para. 129. In the same ruling, the Appellate Body considered that there was “sufficient nexus” between the respondent country (the United States) and sea turtles that, though at times outside the United States’ jurisdiction, were migratory and endangered. Id., para. 133. Given the transboundary and severe nature of climate change, a similarly persuasive nexus would appear to exist between carbon emitted abroad and the potential adverse climate change effects in a regulating country. See Pauwelyn, Carbon Leakage Measures, supra note 160, at 498; Holzer, Carbon-Related Border Adjustment, supra note 160, at 165. On extraterritoriality in the context of measures addressing the carbon footprint of products more generally, see Natalie Dobson, The EU's Conditioning of the “Extraterritorial” Carbon Footprint: A Call for an Integrated Approach in Trade Law Discourse, 27 Rev. Eur. Comp. & Int'l Envtl. L. 75 (2018).

240 Analogously, AB Report, U.S.—Shrimp, supra note 237, para. 132, cites the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).

241 Holzer, Carbon-Related Border Adjustment, supra note 160, at 155.

242 AB Report, U.S.—Shrimp, supra note 237, para. 141.

243 Id.

244 AB Report, U.S.—Gasoline, supra note 238, at 19.

245 Pauwelyn, Carbon Leakage Measures, supra note 160, at 500.

246 AB Report, U.S.—Gasoline, supra note 238, at 21. Even though treatment need not be identical, the Appellate Body nonetheless suggests that “a measure that would impose a significantly more onerous burden on foreign consumers or producers” is unlikely to pass the Article XX(g) test; Appellate Body Report, China—Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum, para. 5.134, WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R (Aug. 7, 2014).

247 This was indeed the case in U.S.—Gasoline; see AB Report, U.S.—Gasoline, supra note 238, at 21.

248 GATT, supra note 161, Art. XX. Each of these three standards must be met. AB Report, U.S.—Shrimp, supra note 237, para. 150.

249 See GATT Panel Report, United States – Imports of Certain Automotive Spring Assemblies, para. 56, BISD 30S/107 (May 26, 1983).

250 AB Report, U.S.—Shrimp, supra note 237, para. 181.

251 Id., para. 180.

252 Harro van Asselt, Michael Mehling & Thomas Brewer, Addressing Leakage and Competitiveness in US Climate Policy: Issues Concerning Border Adjustment Measures 56 (2009) (discussing the 2008 American Climate Security Act). See also Gary Clyde Hufbauer, Steve Charnovitz & Jisun Kim, Global Warming and the World Trading System 86 (2009).

253 Ismer & Neuhoff, Border Tax Adjustment, supra note 160, at 148.

254 AB Report, U.S.—Shrimp, supra note 237, para. 174. See also Holzer, Carbon-Related Border Adjustment, supra note 160, at 173.

255 AB Report, U.S.—Shrimp, supra note 237, para. 166.

256 Panel Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products (Recourse to Article 21.5 by Malaysia), para. 5.67, WT/DS58/RW (June 15, 2001) [hereinafter Panel Report, U.S.—Shrimp (Article 21.5)]. See also Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products (Recourse to Article 21.5 by Malaysia), para. 134, WT/DS58/AB/RW (Oct. 22, 2001) [hereinafter AB Report, U.S.—Shrimp (Article 21.5)]. Non-ratification of the Paris Agreement could be used as evidence that a country has not made “serious good faith efforts:” in U.S. —Shrimp, the AB referred to the fact that the United States had not signed several relevant multilateral environmental agreements. U.S.—Shrimp, supra note 237, para. 171, n. 174.

257 AB Report, U.S.—Shrimp, supra note 237, para. 172.

258 AB Report, U.S.—Shrimp (Article 21.5), supra note 246, para. 149. The AB continued to state that this “does not require a Member to anticipate and provide explicitly for the specific conditions prevailing and evolving in every individual Member.” Id.

259 AB Report, U.S.—Shrimp, supra note 237, para. 164.

260 AB Report, U.S.—Shrimp (Article 21.5), supra note 256, para. 144 (emphasis added).

261 Pauwelyn, Carbon Leakage Measures, supra note 160, at 502–03.

262 In addition, it raises the question of who should determine whether another country has taken action “comparable in effectiveness.” If this determination is made by the country introducing the BCA, considerations of basic fairness and due process may require, inter alia, an opportunity to appeal the finding.

263 Paris Agreement, supra note 1, Art. 13(7)(b).

264 See infra Part V.B.

265 Various WTO Agreements contain specific provisions providing for special and differential treatment. See, e.g., GATT, supra note 161, Arts. XVIII, XXXVI, XXXVII, XXXVIII. See also Marrakesh Agreement Establishing the World Trade Organization, pmbl., Annex IA, 1867 UNTS 187 [hereinafter WTO Agreement] (“seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development”).

266 Pauwelyn, Carbon Leakage Measures, supra note 160, at 503–04.

267 AB Report, EC—Seals, supra note 219, para. 5.318. In Brazil—Retreaded Tyres, the Appellate Body had suggested that there is arbitrary or unjustified discrimination “when the reasons given for this discrimination bear no rational connection to the objective falling within the purview of a paragraph of Article XX, or would go against that objective. The assessment of whether discrimination is arbitrary or unjustifiable should be made in the light of the objective of the measure.” AB Report, Brazil—Retreaded Tyres, supra note 225, para. 227.

268 Hufbauer, Charnovitz & Kim, Global Warming and the World Trading System, supra note 252, at 69 (“Although GATT Article XX is not directly relevant to whether a BTA for outward shipments is an export subsidy, the rebate on an energy tax for exports could undermine the Article XX environmental justification for applying the BTA to imports.”).

269 GATT Panel Report, United States—Prohibition of Imports of Tuna and Tuna Products from Canada, para. 4.8, BISD 29S/91 (Feb. 22, 1982). However, the AB also found that “concealed or unannounced restriction or discrimination in international trade does not exhaust the meaning of ‘disguised restriction.’” AB Report, U.S.—Gasoline, supra note 238, at 25.

270 AB Report, U.S.—Gasoline, supra note 238, at 25.

271 U.S.—Shrimp (Article 21.5), supra note 256, para. 5.142 (referring to AB Report, Japan—Alcoholic Beverages II, supra note 185, at 29).

272 See generally de Cendra, Can Emissions Trading Schemes be Coupled with Border Tax Adjustments?, supra note 160, at 139–41; Holzer, Carbon-Related Border Adjustment, supra note 160, at 201–04; Trachtman, WTO Law Constraints, supra note 160, at 117–18; Hufbauer, Charnovitz & Kim, Global Warming and the World Trading System, supra note 252, at 41–46.

273 ASCM, supra note 162, Art. 1.1.

274 Id., n. 1. See also GATT, supra note 161, ad Art. XVI.

275 See supra Part V.A.1.ii.

276 ASCM, supra note 162, Art. 3.1(a).

277 This would presume that the original carbon constraint can be considered an “indirect tax.” Footnote 58 in Annex I of the ASCM seems to support such an interpretation. It includes income and property taxes under “direct taxes,” and refers to all other taxes as “indirect taxes.”

278 ASCM, supra note 162, Annex I, item (g). Item (h) of the Illustrative List may also apply, but this item is limited to “prior-stage cumulative indirect taxes.” Although carbon pricing measures could in theory be designed as such (Hufbauer, Charnovitz & Kim, Global Warming and the World Trading System, supra note 252, at 45), it is more likely that they would fall under the broader reference to “indirect taxes” under item (g). Id. at 45; Charles McLure, Jr., A Primer on the Legality of Border Adjustments for Carbon Prices: Through a GATT Darkly, 4 Carbon & Climate L. Rev. 456, 459 (2011).

279 See Holzer, Carbon-Related Border Adjustment, supra note 160, at 204. Moreover, in case the emissions trading system employs free allocation of emissions allowances, any payments would likely be in excess of taxes accrued, as exporters would get a rebate for allowances they received for free in the first place. Id.

280 Id. at 204–05.

281 See also Hufbauer, Charnovitz & Kim, Global Warming and the World Trading System, supra note 252, at 68.

282 Cf. id. at 46; Holzer, Carbon-Related Border Adjustment, supra note 160, at 205.

283 UNFCCC, supra note 17, Art. 3(5).

284 Daniel Bodansky, The United Nations Framework Convention on Climate Change: A Commentary, 18 Yale J. Int'l L. 451, 505 (1993),

285 UNFCCC, supra note 17, Art. 3(1). See also Paris Agreement, supra note 1, Art. 2(2) (which includes the qualifier “in the light of different national circumstances”). On the principle in international environmental law generally, see Lavanya Rajamani, Differential Treatment in International Environmental Law (2006)

286 A related question not addressed here is the extent to which the principle of common but differentiated responsibilities could be used as applicable law or as interpretive device by WTO dispute settlement bodies, particularly in the context of the Article XX exceptions. See Michael Hertel, Climate-Change-Related Trade Measures and Article XX: Defining Discrimination in Light of the Principle of Common but Differentiated Responsibilities, 45 J. World Trade 653 (2011); Pananya Larbprasertporn, The Interaction Between WTO Law and the Principle of Common but Differentiated Responsibilities in the Case of Climate-Related Border Tax Adjustments, 6 Goettingen J. Int'l L. 145 (2014).

287 Especially through the Kyoto Protocol, supra note 5, under which only developed countries listed in Annex I of the UNFCCC were obliged to achieve emissions targets.

288 See Lavanya Rajamani, Ambition and Differentiation in the 2015 Paris Agreement: Interpretative Possibilities and Underlying Politics, 65 Int'l & Comp. L. Q. 493 (2016).

289 See, e.g., Paris Agreement, supra note 1, Arts. 4(6), 13(3).

290 Hertel, Climate-Change-Related Trade Measures, supra note 286, at 677.

291 Jacob Werksman & Trevor Houser, Competitiveness, Leakage and Comparability: Disciplining the Use of Trade Measures Under a Post-2012 Climate Agreement 4 (2008), available at http://pdf.wri.org/working_papers/competitiveness_leakage_and_comparability.pdf.

292 Cosbey et al., A Guide for the Concerned, supra note 214, at 17.

293 Id. at 18. See also Grubb, Michael, International Climate Finance from Border Carbon Cost Levelling, 11 Climate Pol'y 1050 (2011).

294 Reinaud, Issues Behind Competitiveness and Carbon Leakage, supra note 43.

295 de Cendra, Can Emissions Trading Schemes be Coupled with Border Tax Adjustments?, supra note 160.

296 Böhringer, Balistreri & Rutherford, The Role of Border Carbon Adjustment, supra note 70; Fischer & Fox, Comparing Policies, supra note 54.

297 OECD, Effective Carbon Prices 12 (2013).

298 Böhringer, Carbone & Rutherford, Unilateral Climate Policy Design, supra note 82.

299 Cosbey et al., A Guide for the Concerned, supra note 214, at 13.

300 Fischer, Carolyn, Options for Avoiding Carbon Leakage, in Towards a Workable and Effective Climate Regime 297 (Barrett, Scott, Carraro, Carlo & de Melo, Jaime eds., 2015).

301 Cosbey, Aaron & Fischer, Carolyn, International Guidance for Border Carbon Adjustments to Address Carbon Leakage, in Toward a New Climate Agreement: Conflict, Resolution and Governance 220, 223 (Cherry, Todd L., Hovi, Jon & McEvoy, David M. eds., 2014).

302 Kortum & Weisbach, supra note 13, at 439.

303 Olivier Godard, Unilateral European Post-Kyoto Climate Policy and Economic Adjustment at EU Borders 11 (EDF-École Polytechnique Cahier No. DDX 07-15, 2007), available at http://www.rgte.centre-cired.fr/IMG/pdf/OG-BTA-UK-0907-FIN.pdf; Pauwelyn, US Federal Climate Policy and Competitiveness Concerns, supra note 160, at 32–33.

304 Böhringer, Christoph, Carbone, Jared C. & Rutherford, Thomas F., Embodied Carbon Tariffs, 120 Scand. J. Econ. 183 (2018).

305 van Asselt & Brewer, Addressing Competitiveness and Leakage Concerns in Climate Policy, supra note 103.

306 World Bank and Ecofys, State and Trends of Carbon Pricing 2018, at 17 (2018).

307 Joshua Elliott, Ian Foster, Sam Kortum, Gita Khun Jush, Todd Munson & David Weisbach, Unilateral Carbon Taxes, Border Tax Adjustments, and Carbon Leakage, 14 Theor. Inquiries in L. 207, at 240 (2012).

308 Kortum & Weisbach, supra note 13.

309 Hillman, Changing Climate for Carbon Taxes, supra note 176.

310 Cosbey et al., A Guide for the Concerned, supra note 214, at 1; Cosbey et al., Developing Guidance, supra note 49, at 14.

311 Sofia Persson, Practical Aspects of Border Carbon Adjustment Measures: Using a Trade Facilitation Perspective to Assess Trade Costs (ICTSD Programme on Competitiveness and Sustainable Development Issue Paper No. 13, 2012), available at https://www.ictsd.org/downloads/2012/03/persson-ictsd-practical-aspects-of-border-carbon-adjustment-measures.pdf.

312 James Bacchus, Global Rules for Mutually Supportive and Reinforcing Trade and Climate Regimes (E15 Expert Group on Measures to Address Climate Change and the Trade System Policy Options Paper, 2016), available at http://www3.weforum.org/docs/E15/WEF_Climate_Change_POP.pdf.

313 See, e.g., EXIOBASE, the World Input-Output Database (WIOD), the Global Resource Accounting Model (GRAM), the Global Trade Analysis Project (GTAP), EoRA, and the OECD's Inter-Country Input-Output (ICIO) Database, as described by van de Lindt et al., Carbon Emission Mitigation by Consumption-Based Accounting and Policy, supra note 16; Wiebe, Gandy & Lutz, Policies and Consumption-Based Carbon Emissions from a Top-Down and a Bottom-Up Perspective, supra note 16.

314 Moran, Hasanbeigi & Springer, The Carbon Loophole in Climate Policy, supra note 16.

315 Onat, Nuri C., Kucukvar, Murat, Halog, Anthony & Cloutier, Scott, Systems Thinking for Life Cycle Sustainability Assessment: A Review of Recent Developments, Applications, and Future Perspectives, 9 Sustainability 706 (2017).

316 International Organization for Standardization, Greenhouse Gases/Carbon Footprint of Products/Requirements and Guidelines for Quantification and Communication, ISO/TS 14067:2013 (May 2013), at https://www.iso.org/standard/59521.html.

317 Dawkins & Croft, Consumption-Based Accounting Reveals Global Redistribution of Carbon Emissions, supra note 64.

318 See generally Richard A. Posner, Taxation by Regulation, 2 Bell J. Econ. & Mgmt. Sci. 22 (1971).

319 OECD, Effective Carbon Prices, supra note 297, at 17–18.

320 Böhringer, Balistreri & Rutherford, The Role of Border Carbon Adjustment, supra note 70.

321 McKibbin, Morris, Wilcoxen & Liu, The Role of Border Adjustments in a U.S. Carbon Tax, supra note 96.

322 The Multilateral Fund was established in 1990 to assist developing country parties to the Montreal Protocol, and provides financial support for the implementation of projects including industrial conversion, technical assistance, training and capacity building that result in the phase-out of substances that harm the Earth's ozone layer. See Richard E. Benedick, Ozone Diplomacy: New Directions in Safeguarding the Planet 252 (1991).

323 Persson, Practical Aspects of Border Carbon Adjustment Measures, supra note 311.

324 Gernot Wagner, But Will the Planet Notice? How Smart Economics Can Save the World 201 (2011).

325 Tamiotti, The Legal Interface Between Carbon Border Measures and Trade Rules, supra note 160, at 1207.

326 Committee on Trade and Environment, Promoting Mutual Supportiveness Between Trade and Climate Change Mitigation Actions: Carbon-Related Border Tax Adjustments, WTO Doc. WT/CTE/W/248 (Mar. 30, 2011).

327 See generally Das, Kasturi, van Asselt, Harro, Droege, Susanne & Mehling, Michael, Making the International Trade System Work for the Paris Agreement: Assessing the Options, 49 Envtl. L. Rep. News & Analysis 10553 (2019).

328 Bacchus, Global Rules for Mutually Supportive and Reinforcing Trade and Climate Regimes, supra note 312; Hufbauer, Charnovitz & Kim, Global Warming and the World Trading System, supra note 252.

329 WTO Agreement, supra note 265, Art. X.

330 Id. Art. IX:3. See also Hufbauer, Charnovitz & Kim, Global Warming and the World Trading System, supra note 252, at 97.

331 WTO Agreement, supra note 265, Art. IX:2.

332 Horn, Henrik & Mavroidis, Petros C., To B(TA) or Not to B(TA)? On the Legality and Desirability of Border Tax Adjustments from a Trade Perspective, 34 World Econ. 1911 (2011).

The authors acknowledge funding from the KR Foundation under the Climate Strategies project “Making the Trading System Work for Climate Change” (2016–2017), valuable comments at various stages of the project by James Bacchus, Dominique Bureau, Henry Derwent, Gary C. Hufbauer, Rodrigo Polanco, Ludivine Tamiotti, Joel P. Trachtman, and Jacob Werksman, and feedback from participants in the workshops “Border Carbon Adjustments: A Renewed Role after Paris?” on May 25, 2016 in Bonn, Germany, “Making the International Trading System Work for Climate Change: Assessing the Options” on October 19, 2017 in Crozet, France, and “Market Instruments for More Ambitious Climate Action: How to Adjust National Policies in a Bilateral or Global Market?” on May 22, 2018 in Mexico City, Mexico, as well as participants in the Side Event “The Role of Trade Policy in the Post-Paris Climate World” at the 23rd Session of the Conference of the Parties to the UNFCCC on November 10, 2017 in Bonn, Germany, and the “Talking Trade, Standards and Environment” Speaker Series at the World Trade Organization Secretariat on July 4, 2018 in Geneva, Switzerland. The authors are also indebted to five anonymous reviewers for extremely insightful, detailed, and constructive feedback. Any remaining errors or inaccuracies remain the responsibility of the authors.

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