Today, the World Trade Organization, together with the UN Environment Programme posted a report on trade and climate change that outlines how carbon border taxes may be consistent with WTO rules. It is a very careful discussion of relevant articles, their intent and interpretation, and related WTO cases (though no case has specifically dealt with climate change).
In some cases, the WTO-UNEP discussion reads like “on the one hand, and on the other.” The report is bound to provide environmental groups with ammunition to argue that CO2 border taxes are WTO-compliant. However, the issues and their legal precedents are not that clear-cut. What’s more likely is that the introduction of border taxes or similar measures will open up a flood of retaliatory actions and disputes.
Here’s a summary from the report of the relevant GATT and WTO rules:
If a particular measure is inconsistent with one of the core provisions of the GATT (e.g. Articles I, III or XI), it could still be justified under Article XX. Article XX lays out a number of specific instances in which WTO members may be exempted from GATT rules. Two exceptions are of particular relevance to the protection of the environment: paragraphs (b) and (g) of Article XX. According to these two paragraphs, WTO members may adopt policy measures that are inconsistent with GATT disciplines, but necessary to protect human, animal or plant life or health (paragraph (b)), or relating to the conservation of exhaustible natural resources (paragraph (g)).
The report was issued just as the U.S. House of Representatives was to begin consideration of the Waxman-Markey energy bill, which, according to Inside Trade (subscription required), will include a Ways and Means Manager’s Amendment with provisions for carbon border adjustments to address competitive and so-called leakage issues.