Current Developments in Domestic
Climate Mitigation Measures
Price-based Instruments and
relevant WTO rules
Ludivine Tamiotti, Counsellor
Trade and Environment Division, WTO
[email protected]
Outline of presentation
Price and market mechanisms to internalize
environmental cost
Border carbon adjustments
Relevant WTO rules
Price & market mechanisms to
internalize environmental cost
Two Key Instruments
Tax on the carbon content of fossil fuels, often
combined with a tax on energy use
Emissions Trading Scheme
Effectiveness: Carbon tax vs. ETS
Carbon tax
Price is determined directly by the
regulators through the tax rate
(exogenously)
Environmental
uncertainty?
Quantity of emissions to be reduced
is a result of measures adopted by
industry to reduce emissions
(endogenously)
ETS
Price is determined by the market
(endogenously)
Price uncertainty?
Quantity of emissions to be reduced
is determined by regulators
(exogenously)
Environmental effectiveness
2 key intended environmental effects of a
carbon tax and an ETS
Direct effect, i.e.
reduction of GHG
emissions, by setting
a price on emissions
Indirect effect, through “recycling”
of fiscal or auctioning revenues to
fund e.g. investment in more
climate-friendly technologies
Border carbon adjustments
Rationale
Competitiveness loss
Emissions
reduction policies
This may give rise to
are not applied
universally
Carbon leakage
Rationale
Concern: enhanced competitiveness (economic) of non
carbon constrained producers could lead to ‘carbon
leakage’ (environmental)
In particular for energy intensive
industries
 However, effects are still uncertain
Rationale
To offset
asymmetries in
competitiveness
To avoid carbon
leakage
Border
adjustment
measures
Relevant WTO Rules
Relevant WTO rules
Coverage?
Key legal challenges for a
case-by-case analysis
Consistency?
Justifiability?
Coverage?
Importance to define the instrument at hand to determine
relevant WTO/GATT provisions
A border adjustment to a tax?
A border adjustment to another
carbon cost, e.g. an ETS?
Coverage?
BTA on imports (equivalent to a
domestic tax)
Two
 The GATT Working Group on
Situations
Border Tax Adjustments (1970)
BTA on exports (i.e. a refund of
domestic tax before exportation)
Implementation of the destination principle
to ensure trade neutrality
Coverage?
GATT Article II.2(a) provides for the possibility of imposing
at any time on the importation of any product:
A charge equivalent to an internal tax in respect of the like
domestic product or in respect of an article from which the
imported product has been manufactured or produced in
whole or in part.
GATT Article III.2 covers “internal taxes or other internal
charges of any kind”
Coverage?
A border adjustment to a regulation, e.g. an ETS?
Submit emissions credits acquired abroad to
cover the emissions during the production
process of the imported good
Potential
requirements
on importers
Hold emission allowances, up to the amount
of CO2 emitted during the production of
imported products and applied on a per unit
basis to each good
Coverage?
GATT
Article III.2
Can the price paid by an industry to
participate in an ETS be qualified as an
“internal tax or other internal charge of
any kind”, covered under Article III.2?
GATT
Article III.4
Can an ETS be seen as a measure covered
by Article III:4, i.e. as a law, regulation
and requirement affecting the internal
sale, offering for sale, purchase,
transportation, distribution or use?
Consistency?
With basic
principles, e.g. non
discrimination
National treatment
Most Favoured Clause
Prohibition to discriminate between “like” products
Consistency?
Prohibition to discriminate between “like” products
Except if...
Justifiability?
WTO rules, as
confirmed by
jurisprudence
Essential to maintain
a balance between
Under certain conditions, Members can
adopt trade-related measures aimed at
protecting the environment
the right of Members to take
regulatory measures to achieve
legitimate policy objectives
the rights of other WTO Members
under basic trade rules
Justifiability?
Conservation of clean air from air
pollution
Several disputes on
measures that sought
to achieve a variety
of policy objectives
Conservation of sea turtles from
incidental capture in commercial fishing
Protection of human health from risks
posed by asbestos
Protection of human health from risks
posed by the accumulation of waste tyres
WTO jurisprudence has confirmed that WTO rules do not trump
environment, as long as…
Justifiability?
…as long as several carefully crafted conditions are
respected…
Environmental measures must not be applied in a
manner which constitutes
a means of arbitrary/unjustifiable
discrimination or
 a disguised restriction on international trade
Justifiability?
Major practical challenges in implementation
 in assessing product-specific emissions
 fluctuations of the carbon price
 existence of carbon leakage
…
Implementation is key!
Current Developments in Domestic
Climate Mitigation Measures
Price-based Instruments and
relevant WTO rules
Ludivine Tamiotti, Counsellor
Trade and Environment Division, WTO
[email protected]