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Climate change is a multi-faceted discussion: for the trading community, one of many contentious issues in the policy debate over how to deal with greenhouse gas (GHG) emissions is the appropriate role of Border Carbon Adjustments (BCAs)/Border Tax Adjustments (BTAs). The role of BCAs has been analyzed in a very large policy discussion literature, as well as in a significant number of academic writings in both law and economics. One can safely summarize the state of each of these literatures as bewildering: in the legal literature there is still no consensus as to whether such measures are legal under the WTO Agreement, and while the economic literature often show that such schemes in theory at least could have a role to play, there is doubt whether the literature addresses the concerns of critics of BCA schemes. The views concerning BCAs also differ widely in the policy areas. For instance, in November 2006 French Prime Minister de Villepin voiced his concerns with countries that will not take part in a successor to the Kyoto Protocol, expressing fear that this will lead to both competitiveness problems for European industry, and to carbon leakage. Some form of BCA was suggested to cope with these problems. However, the European Trade Commissioner Peter Mandelson discouraged effectively shelved this proposal arguing that such policies would ultimately prove counter-productive, since international cooperation was claimed to be necessary to combat climate change. In 2009 German officials even called a French proposal to target countries that would not participate in reductions of GHG a form of "eco-imperialism." The purpose of this paper is to discuss the legal possibility for WTO Members to use trade remedies in the form of BTAs/ BCAs against other WTO Member, without pronouncing on the policy question concerning the desirability for such schemes.

In Section 2, we take this discussion within the legal multilateral trade context: we explore the question under what conditions recourse to BTAs/BCAs is consonant with WTO law. The Section provides the relevant regulatory framework that a WTO adjudicating body must have recourse to in order to adjudicate a dispute like the one presented here. Section 3 then seeks to determine how a WTO adjudicating body would likely view BTAs/BCAs. Section 4 changes the perspective, and discusses the question of how BTAs/BCAs should be viewed. We here first briefly highlight the view of the legal doctrine, and then turn to our own proposed approach. To ease the exposition we consider a series of scenarios in which an importing country levies carbon tariffs on the exports of a country with less ambitious environmental policies. Section 5 concludes.


Economics | Environmental Law | Law