To tackle climate change and Greenhouse Gas emissions is no easy task. In a recent article, Don Pittis discusses the possibility of carbon taxes and suggests they would not work. Pittis’s article neglects consideration of the World Trade Organization (WTO), which stands at the centre of the international trade regime and has enormous impact on global trade.
There is no “level playing field” in the WTO regime, by definition. Each country makes different concessions and these become “multilateralized.” This means that what you promise as a tariff cut to one of the WTO member states is a promise you make to all. As a result, the WTO regime is a huge nexus of different commitments.
While there are concerns that the WTO is not designed specifically to protect the environment, the WTO does not prohibit environmentally friendly legislation; it just mandates that such laws must be applied the same way across the board, for national products and imported products. In other words, the WTO does not allow environmental rules to mask protectionist policies that distort trade. If the legislation is applied without discriminating between products with the same carbon footprints, there will not be a problem with respect to WTO law. So trade can be green. Even if environmental legislation results in some sort of discrimination, the cardinal WTO Agreement, the GATT, allows exceptions for national policy reasons, such as the protection of the environment and natural resources. The WTO states in its website that:
“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))”[1]
The necessary trade agreements are already there. COP21 can raise awareness of the fact that countries can not only impose carbon taxes in their domestic markets — entirely legally and without violating their international obligations — but even further, they can impose border tax adjustments (BTAs) for their imports as well. Yes, there may be complications in the calculation of carbon emissions, but as long as countries make considerable efforts to measure and tax without discrimination, the tax (and border adjustment) will most likely survive scrutiny before the WTO courts, the Panels and Appellate Body.[2]
The lack of a level playing field does not mean those jurisdictions that take a stand to lower carbon emissions have lost the game. Coupling carbon taxes and BTAs is not a sufficient plan to reverse global warming, as it only focuses on pricing emissions, not limiting them. It is, however, a step in the right direction. One positive effect that tax schemes may have is the incentive to pollute less or adopt green technologies in order to maintain and increase competitiveness of products in national and global markets. Another positive outcome is that BTAs produce fairer outcomes by taxing all products with equal carbon footprint and produce greener domestic markets. Achieving a UNFCCC COP21 agreement in the next few days is crucial. WTO countries can complement that new global agreement by using trade laws and taxing imports and exports with high carbon emissions and thereby encourage a global transition to a green economy. Even with an uneven playing field, this game is definitely not lost.
[1] https://www.wto.org/english/tratop_e/envir_e/envt_rules_exceptions_e.htm
[2] See for a more detailed analysis https://www.cigionline.org/publications/when-co2-goes-geneva-taxing-carbon-across-borders-without-violating-wto-obligations