International Economics and Economic Policy

, Volume 7, Issue 2–3, pp 203–225

The U.S. proposed carbon tariffs, WTO scrutiny and China’s responses

Original Paper

Abstract

With governments from around the world trying to hammer out a post-2012 climate change agreement, no one would disagree that a U.S. commitment to cut greenhouse gas emissions is essential to such a global pact. However, despite U.S. president Obama’s announcement to push for a commitment to cut U.S. greenhouse gas emissions by 17% by 2020, in reality it is questionable whether U.S. Congress will agree to specific emissions cuts, although they are not ambitious at all from the perspectives of both the EU and developing countries, without the imposition of carbon tariffs on Chinese products to the U.S. market, even given China’s own announcement to voluntarily seek to reduce its carbon intensity by 40–45% over the same period. This dilemma is partly attributed to flaws in current international climate negotiations, which have been focused on commitments on the two targeted dates of 2020 and 2050. However, if the international climate change negotiations continue on their current course without extending the commitment period to 2030, which would really open the possibility for the U.S. and China to make the commitments that each wants from the other, the inclusion of border carbon adjustment measures seems essential to secure passage of any U.S. legislation capping its own greenhouse gas emissions. Moreover, the joint WTO-UNEP report indicates that border carbon adjustment measures might be allowed under the existing WTO rules, depending on their specific design features and the specific conditions for implementing them. Against this background, this paper argues that, on the U.S. side, there is a need to minimize the potential conflicts with WTO provisions in designing such border carbon adjustment measures. The U.S. also needs to explore, with its trading partners, ccooperative sectoral approaches to advancing low-carbon technologies and/or concerted mitigation efforts in a given sector at the international level. Moreover, to increase the prospects for a successful WTO defence of the Waxman-Markey type of border adjustment provision, there should be: 1) a period of good faith efforts to reach agreements among the countries concerned before imposing such trade measures; 2) consideration of alternatives to trade provisions that could reasonably be expected to fulfill the same function but are not inconsistent or less inconsistent with the relevant WTO provisions; and 3) trade provisions that should allow importers to submit equivalent emission reduction units that are recognized by international treaties to cover the carbon contents of imported products. Meanwhile, being targeted by such border carbon adjustment measures, China needs to, at the right time, indicate a serious commitment to address climate change issues to challenge the legitimacy of the U.S. imposing carbon tariffs by signaling well ahead that it will take on binding absolute emission caps around the year 2030, and needs the three transitional periods of increasing climate obligations before taking on absolute emissions caps. This paper argues that there is a clear need within a climate regime to define comparable efforts towards climate mitigation and adaptation to discipline the use of unilateral trade measures at the international level. As exemplified by export tariffs that China applied on its own during 2006–08, the paper shows that defining the comparability of climate efforts can be to China’s advantage. Furthermore, given the fact that, in volume terms, energy-intensive manufacturing in China values 7 to 8 times that of India, and thus carbon tariffs have a greater impact on China than on India, the paper questions whether China should hold the same stance on this issue as India as it does now, although the two largest developing countries should continue to take a common position on other key issues in international climate change negotiations.

Keywords

Post-2012 climate negotiations Border carbon adjustments Carbon tariffs Emissions allowance requirements Cap-and-trade regime Lieberman-Warner bill Waxman-Markey bill World trade organization Kyoto protocol China United States 

JEL classification

F18 Q48 Q54 Q56 Q58 

References

  1. Berger JR (1999) Unilateral trade measures to conserve the world’s living resources: an environmental breakthrough for the GATT in the WTO sea turtle case. Columbia J Environ Law 24:355–411Google Scholar
  2. Bhagwati J, Mavroidis PC (2007) Is action against US exports for failure to sign Kyoto Protocol WTO-legal? World Trade Rev 6(2):299–310CrossRefGoogle Scholar
  3. Bounds A (2006) EU trade chief to reject ‘Green’ tax plan. Financial Times, December 17, Available at: http://www.ft.com/cms/s/0/9dc90f34-8def-11db-ae0e-0000779e2340.html?nclick_check=1
  4. Bovenberg AL, Goulder LH (2002) Addressing industry-distributional concerns in U.S. climate change policy. Unpublished manuscript, Department of Economics, Stanford UniversityGoogle Scholar
  5. Broder J (2009) Obama opposes trade sanctions in climate bill. New York Times, June 28, Available at: http://www.nytimes.com/2009/06/29/us/politics/29climate.html?_r=2&scp=1&sq=obama%20opposes%20trade%20sanctions&st=cse
  6. Charnovitz S (2003) Trade and climate: potential conflicts and synergies, in Pew Center on Global Climate Change. Beyond Kyoto—advancing the international effort against climate change, pp 141–170Google Scholar
  7. Department of Economic and Social Affairs of the United Nations (UNDESA) (2009) World population prospects: the 2008 revision. Available at: http://esa.un.org/unpp
  8. Doyle A (2009) U.S. praises China’s climate efforts. Urges More, Reuters, Available at: http://www.reuters.com/article/environmentNews/idUSTRE52S1WP20090329
  9. Dröge S et al (2009) Tackling leakage in a world of unequal carbon prices. Synthesis Report, Climate Strategies, Cambridge, United KingdomGoogle Scholar
  10. EIA (2004) International Energy Outlook 2004. U.S. Energy Information Administration (EIA), Washington, DCGoogle Scholar
  11. European Commission (2008) 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) 16 final, BrusselsGoogle Scholar
  12. Genasci M (2008) Border tax adjustments and emissions trading: the implications of international trade law for policy design. Carbon and Climate Law Review 2(1):33–42Google Scholar
  13. General Agreement on Tariffs and Trade (GATT) (1987) United States—taxes on petroleum and certain imported substances. Report of the Panel, Adopted on June 17, L/6175, BISD 34S/136, Geneva, Available at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/introduction_01_e.htm
  14. General Agreement on Tariffs and Trade (GATT) (1990) Thailand—restrictions on importation of and internal taxes on cigarettes. Report of the Panel, DS10/R, Adopted on November 7, BISD 37S/200, Geneva, Available at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/introduction_01_e.htm
  15. General Agreement on Tariffs and Trade (GATT) (1994) United States: restrictions on the imports of tuna. Report of the Panel (not adopted), DS29/R, June 16, Geneva, Available at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/introduction_01_e.htm
  16. Haverkamp J (2008) International aspects of a climate change cap and trade program. Testimony before the Committee on Finance, U.S. Senate, February 14, Available at: http://finance.senate.gov/hearings/testimony/2008test/021408jhtest.pdf
  17. Hollinger P (2009) Sarkozy renews carbon tax call. Financial Times, September 11, p. 5Google Scholar
  18. Houser T, Bradley R, Childs B, Werksman J, Heilmayr R (2008) Leveling the carbon playing field: international competition and U.S. climate policy design. Peterson Institute For International Economics and World Resources Institute, Washington, DC.Google Scholar
  19. IEA (2007) World Energy Outlook 2007. International Energy Agency (IEA), ParisGoogle Scholar
  20. IEA (2009) World Energy Outlook 2009. International Energy Agency (IEA), ParisGoogle Scholar
  21. Ismer R, Neuhoff K (2007) Border tax adjustment: a feasible way to support stringent emission trading. Eur J Law Econ 24(2):137–164CrossRefGoogle Scholar
  22. McBroom M (2008) How the IBEW-UWM-Boilermakers-AEP International Proposal Operates within Climate Legislation, June 17, Available at: http://www.wita.org/index.php?tg=fileman&idx=viewfile&idf=189&id=4&gr=Y&path=&file=WITA-+Climate+Change+-+Overview+of+IBEW-AEP+Proposal+(June+17%2C+2008).pdf
  23. Ministry of Commerce of China (MOC of China) (2009) A statement on “Carbon Tariffs”. July 3, Beijing, Available at: http://www.mofcom.gov.cn/aarticle/ae/ag/200907/20090706375686.html, (in Chinese)
  24. Morris MG, Hill ED (2007) Trade is the key to climate change. Energy Dly 35(33), February 20, Available at: http://www.theenergydaily.com/articles/ed/2007/ed02200703.html
  25. National Bureau of Statistics of China (2008) China Statistical Yearbook 2008. China Statistics Press, BeijingGoogle Scholar
  26. Parry IWH, Williams RC III, Goulder LH (1999) When can carbon abatement policies increase welfare? The fundamental role of distorted factor markets. J Environ Econ Manage 37(1):52–84CrossRefGoogle Scholar
  27. Reinaud J (2008) Issues behind competitiveness and carbon leakage: focus on heavy industry. IEA Information Paper, IEA/OECD, October, ParisGoogle Scholar
  28. Reuters (2009) China says “Carbon Tariffs” proposals breach WTO rules. New York Times, July 3, Available at: http://www.nytimes.com/reuters/2009/07/03/world/international-uk-china-climate.html?ref=global-home
  29. Samuelsohn D (2007) Trade plan opposed by China, Brazil and Mexico. Greenwire, September 26, Available at: http://www.earthportal.org/news/?p=507
  30. Swedish National Board of Trade (2004) Climate and trade rule—harmony or conflict? StockholmGoogle Scholar
  31. Talley I (2009) Senate to put off climate bill until spring. Wall Street Journal, November 18, Available at: http://online.wsj.com/article/SB125850693443052993.html
  32. The Economist (2008) Pollution law: trading dirt, June 7, pp. 42–44Google Scholar
  33. The World Bank (2007) International trade and climate change: economic, legal and institutional perspectives. Washington DCGoogle Scholar
  34. Wang X, Voituriez T (2009) Can unilateral trade measures significantly reduce leakage and competitiveness pressures on EU-ETS-constrained industries? The Case of China Export Taxes and VAT Rebates, Working Paper, Climate Strategies, Cambridge, United KingdomGoogle Scholar
  35. Werksman J, Houser T (2008) Competitiveness, leakage and comparability: disciplining the use of trade measures under a post-2012 climate agreement. Discussion Paper, World Resources Institute, December, Washington, DCGoogle Scholar
  36. World Trade Organization (WTO) (1998) United States—import prohibition of certain shrimp and shrimp products. Report of the Appellate Body, WT/DS58/AB/R, GenevaGoogle Scholar
  37. World Trade Organization (WTO) (2001) United States—import prohibition of certain shrimp and shrimp products. Recourse to Article 21.5 of the DSU by Malaysia, Panel Report, WT/DS58/RW, Adopted on November 21,GenevaGoogle Scholar
  38. World Trade Organization (WTO) and United Nations Environment Programme (UNEP) (2009) Trade and climate change: WTO-UNEP Report. GenevaGoogle Scholar
  39. Zhang ZX (1997) The economics of energy policy in China: implications for global climate change. New Horizons in Environmental Economics Series, Edward ElgarGoogle Scholar
  40. Zhang ZX (1998) Greenhouse gas emissions trading and the world trading system. J World Trade 32(5):219–239Google Scholar
  41. Zhang ZX (1999) Should the rules of allocating emissions permits be harmonised? Ecol Econ 31(1):11–18CrossRefGoogle Scholar
  42. Zhang ZX (2000) Can China afford to commit itself an emissions cap? An economic and political analysis. Energy Econ 22(6):587–614CrossRefGoogle Scholar
  43. Zhang ZX (2003) Why did the energy intensity fall in China’s industrial sector in the 1990s? The relative importance of structural change and intensity change. Energy Econ 25(6):625–638CrossRefGoogle Scholar
  44. Zhang ZX (2004) Open trade with the U.S. without compromising Canada’s ability to comply with its Kyoto target. J World Trade 38(1):155–182Google Scholar
  45. Zhang ZX (2007a) Doing trade and climate policy together. In: Najam A, Halle M, Meléndez-Ortiz R (eds) Trade and environment: a resource book. International Institute for Sustainable Development, Canada, and International Center for Trade and Sustainable Development, GenevaGoogle Scholar
  46. Zhang ZX (2007b) Why has China not embraced a global cap-and-trade regime? Climate Policy 7(2):166–170Google Scholar
  47. Zhang ZX (2008) Asian energy and environmental policy: promoting growth while preserving the environment. Energy Policy 36:3905–3924CrossRefGoogle Scholar
  48. Zhang ZX (2009a) Multilateral trade measures in a post-2012 climate change regime? What can be taken from the Montreal Protocol and the WTO? Energy Policy 37:5105–5112CrossRefGoogle Scholar
  49. Zhang ZX (2009b) How should China respond to the U.S. proposed carbon tariffs? International Petroleum Economics 17(8):13–16Google Scholar
  50. Zhang ZX (2009c) Is China a Christmas tree to hang everybody’s complaints? Putting its own energy-saving into perspective. Energy Econ. doi:10.1016/j.eneco.2009.03.012.0, forthcomingGoogle Scholar
  51. Zhang ZX (2010) Copenhagen and beyond: reflections on China’s stance and responses. In: Cerdá E, Labandeira X (eds) Climate change policies: global challenges and future prospects. Edward Elgar, Cheltenham, United Kingdom and Northampton, United States, pp. 217–231Google Scholar
  52. Zhang ZX, Assunção L (2004) Domestic climate policy and the WTO. World Econ 27(3):359–386CrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.Research Program, East-West CenterHonoluluUSA
  2. 2.Center for Energy Economics and Strategy StudiesFudan UniversityShanghaiChina
  3. 3.Institute of Policy and ManagementChinese Academy of SciencesBeijingChina
  4. 4.China Centre for Urban and Regional Development ResearchPeking UniversityBeijingChina
  5. 5.Center for Environment and DevelopmentChinese Academy of Social SciencesBeijingChina

Personalised recommendations