Implementing carbon tax: from rhetoric to reality

Abstract

Climate change and rising greenhouse gas emissions are the greatest concerns facing humankind today. The year 2019 was a particularly bad year for Planet Earth. The exceptional rise in atmospheric temperatures and raging heat, led to unprecedented and prolonged wildfires–the amazon rainforest fire, the Australian bushfire and a series of wildfires in the Arctic region. Recognising the urgency, the international community has agreed to act collectively. As part of the Paris Climate Agreement, most countries have undertaken carbon reduction targets. As the overall mitigation targets under the Paris Agreement appear inadequate, countries have been exploring additional approaches for carbon mitigation. One option that certain WTO Members have been considering is to impose a price on carbon in the nature of a Pigouvian tax. In the present case, it will be a tax on carbon emissions. However, imposing a carbon tax only on domestic goods will result in issues of carbon leakage as well as decreased competitiveness of the domestic industry. Therefore, WTO Members (such as the European Union) are proactively considering imposition of equivalent taxes on imports also. Such equivalent taxes will essentially be in the nature of a border adjustment taxes under the GATT 1994. This Article examines the compatibility of the border tax adjustments on carbon under the relevant provisions of the GATT 1994, in light of the jurisprudence developed so far. The Article also assesses the possibility for Members to have a recourse to general exceptions under Article XX of the GATT, were a border tax adjustment measure held inconsistent with the substantial obligations under the GATT 1994. In addition to the popular alternatives available under Article XX(b) and Article XX(g) of the GATT 1994, the article has explored the possibility of resorting to Article XX(a), in light of the recent findings in United States - Tariff Measures on Certain Goods from China . Finally, the Article highlights that in order to ensure the overall social and political acceptability of a potential border carbon measure, WTO Members need to be mindful of the multilateral mandate developed in the Paris Agreement.

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Notes

  1. 1.

    See CAMS monitors unprecedented wildfires in the Arctic, 11 July 2019, the Copernicus Atmosphere Monitoring Service (CAMS) has tracked over 100 intense and long-lived wildfires in the Arctic Circle.

  2. 2.

    World Meteorological Organisation, Unprecedented Wildfires in the Arctic, (July 12, 2019) <https://public.wmo.int/en/media/news/unprecedented-wildfires-arctic>.

  3. 3.

    NOAA National Centers for Environmental Information, Global Climate Report-July 2020, <https://www.ncdc.noaa.gov/sotc/global/202007> accessed September 2020; See also Yale Climate Connections, July 2020: One of Earth’s three warmest July months on record (August 14, 2020), <https://yaleclimateconnections.org/2020/08/july-2020-one-of-earths-three-warmest-july-months-on-record/> accessed September 2020.

  4. 4.

    IPCC, 2013: Summary for Policymakers. In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA ; See IPCC Fourth Assessment Report, Working Group III; Legal Aspects of Carbon Trading, Kyoto, Copenhagen and Beyond, (David Freestone and Charlotte Streck, Eds., Oxford University Press) (2009), It is estimated that with the “current climate change mitigation policies and related sustainable development practices, global GHG emissions will continue to grow over the next few decades: CO2 emissions between 2000 and 2030 from energy use are projected to grow 45 to 110% over that period”. The Report in essence clarifies that to avoid 2 degrees C (3.6 degrees F) of warming relative to pre-industrial time, atmospheric concentrations of greenhouse gases need to be stabilized around 450 ppm CO2-eq or lower. Given that we are currently around 430 CO2-eq, this is a tall order, requiring large-scale changes in energy systems and land use.

  5. 5.

    Ibid.

  6. 6.

    Ibid.

  7. 7.

    United Nations FCCC, ‘Report of the Conference of the Parties on its seventeenth session, held in Durban from 28 November to 11 December 2011’ (Mar. 15, 2012) FCCC/CP/2011/9/Add.1.

  8. 8.

    WMO Statement on the State of the Global Climate in 2019, <https://library.wmo.int/doc_num.php?explnum_id=10211>, the United Nations Secretary General has reported that “we are currently way off track to meeting either 1.5 Degrees Celsius or 2 Degrees Celsius targets that the Paris Agreement calls for".

  9. 9.

    See supra note 4.

  10. 10.

    A cap and trade system involve setting a cap or a ceiling on the total amount of permitted emissions in a given time period, for certain industrial sectors and allocating or auctioning the emission credits to all the covered corporations in fixed quantities. The credits denote the quantity of emissions (in tons) that a covered unit is allowed to make. If an organization exceeds its permitted emissions, it will have to pay the costs of the extra emissions. Also, if a corporation saves up on the emissions, it can sell the extra emission credits to other organizations. In other words, a cap and trade system appear more economically efficient as it provides companies with the option of doing a cost-benefit analysis in cutting their emissions.

  11. 11.

    See World Bank, Pricing Carbon, “a carbon tax directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels. It is different from an ETS in that the emission reduction outcome of a carbon tax is not pre-defined but the carbon price is.”

  12. 12.

    New Zealand Ministry for the Environment, About the New Zealand Emissions Trading Scheme (Reviewed December 18, 2019) <https://www.mfe.govt.nz/climate-change/new-zealand-emissions-trading-scheme/about-nz-ets> (accessed September 2020).

  13. 13.

    DIRECTIVE 2003/87/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC.

  14. 14.

    See COUNCIL DECISION (EU) 2017/2240 of 10 November 2017 on the signing, on behalf of the Union, and provisional application of the Agreement between the European Union and the Swiss Confederation on the linking of their greenhouse gas emissions trading systems.

  15. 15.

    Enforcement Decree of the Act on the Allocation and Trading of Greenhouse Gas Emission Permits, Presidential Decree No. 28562, Dec. 29, 2017.

  16. 16.

    Carbon Tax Centre, Where Carbon is Taxed, <https://www.carbontax.org/where-carbon-is-taxed/#Other> (accessed September 2020).

  17. 17.

    The concept of Pigouvian Tax was given by the English economist Arthur Cecil Pigou. “A Pigouvian tax is a tax levied on an agent causing an environmental externality (environmental damage) as an incentive to avert or mitigate such damage”, Glossary of Environment Statistics, Studies in Methods, Series F, No. 67, United Nations, New York, 1997.

  18. 18.

    See Taxing Energy Use 2019: Country Note – Chile, <https://www.oecd.org/tax/tax-policy/taxing-energy-use-chile.pdf> (accessed September 2020).

  19. 19.

    Government Offices of Sweden, Sweden’s carbon tax, (posted February 25, 2020) <https://government.se/government-policy/taxes-and-tariffs/swedens-carbon-tax/#:~:text=Swedish%20carbon%20tax%20rates&text=The%20carbon%20tax%20was%20introduced,of%20SEK%2010.80%20per%20EUR> (accessed September 2020).

  20. 20.

    See, Charles Komanoff, Australia’s Brief, Shining Carbon Tax <https://www.carbontax.org/blog/2020/01/07/australias-brief-shining-carbon-tax/> (accessed September 2020).

  21. 21.

    See Charles Komanoff and Matthew Gordon, British Columbia’s Carbon Tax: By The Numbers A Carbon Tax Center Report, (December 2015) <https://www.carbontax.org/wp-content/uploads/CTC_British_Columbia's_Carbon_Tax_By_The_Numbers.pdf>.

  22. 22.

    Supra note 19.

  23. 23.

    Supra note 18.

  24. 24.

    Different proposals have been raised by in the US and the EU during the last one and a half decade.

  25. 25.

    See California’s new law aims to tackle imported emissions, (posted 18 October 2017).

    <https://www.carbonbrief.org/california-new-law-aims-tackle-imported-emissions> (accessed September 2020).

  26. 26.

    Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions, The European Green Deal, Brussels, (December 11, 2019) COM(2019) 640 final <https://ec.europa.eu/info/sites/info/files/european-green-deal-communication_en.pdf>. The European Green Deal inter alia states, “should differences in levels of ambition worldwide persist, as the EU increases its climate ambition, the Commission will propose a carbon border adjustment mechanism, for selected sectors, to reduce the risk of carbon leakage”.

  27. 27.

    GATT Secretariat, Report by the Working Party on Border Tax Adjustments, L/3464 (Nov. 20, 1970), the OECD Definition on Border Tax Adjustments has been cited in this report.

  28. 28.

    Ibid.

  29. 29.

    In accordance with the destination principle, the value-added taxes on products are levied in the country in which the products are sold or consumed. Therefore, while exports would be relieved of any internal taxes such as value-added tax, imports would be levied a tax equivalent to the tax levied on domestic products. This approach in international taxation helps in levelling the playing field. This understanding is evidenced in Annex I [in Items (g) and (h)] of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) – which, on exported products, permit remission of charges or taxes imposed on inputs used for production. Item g of Annex I clarifies that exemption or remission of indirect taxes in respect of production or distribution of exported products would not be deemed to be a prohibited subsidy. Item h provides a similar clarification with respect to prior stage cumulative indirect taxes on goods or services used in the production of the exported products.

  30. 30.

    See supra 27, [15], the Working party referred to the definition of “taxes occultes” given by the OECD – “as consumption taxes on capital equipment, auxiliary materials and services used in the transportation and production of other taxable goods”.

  31. 31.

    In the Report, the GATT Working Party concluded that there was convergence of views to the effect that taxes directly levied on products were eligible for tax adjustment. Examples of such taxes comprised specific excise duties, sales taxes and cascade taxes and the tax on value added. Furthermore, the Working Party concluded that there was convergence of views to the effect that certain taxes that were not directly levied on products were not eligible for tax adjustment. Examples of such taxes comprised social security charges whether on employers or employees and payroll taxes, supra note 27; See James J. Nedumpara, Energy Security and WTO Agreements in, Sajal Mathur (eds) Trade, the WTO and Energy Security (Springer, 2015).

  32. 32.

    See Matthew C. Porterfield, Border Adjustments for Carbon Taxes, PPMs, and the WTO, Penn Law: Legal Scholarship Repository (2019) <https://scholarship.law.upenn.edu/jil/vol41/iss1/2/>.

  33. 33.

    See Patrick Low, Gabrielle Marceau & Julia Reinaud, The Interface between the trade and climate change regimes: scoping the issues, ERSD-2011-1 (Staff Working Paper, Economic Research and Statistic Division, WTO, 2011); Gary Clyde Hufbauer & Jisun Kim, The World Trade Organization and Climate Change: challenges and options, (Working Paper Series WP09-9, Peterson Institute of International Economics, Washington, 2009); Aaron Cosbey, Border carbon Adjustment: questions and answers (but more of the former) (Background paper, International Institute for Sustainable Development, 2009); Mathew Genasci, Border Tax Adjustments and Emissions Trading: the Implications of International trade law for policy design, 33 Carbon and Climate Law Review (2008); Timothy E. Deal, WTO Rules and Procedures and their implication for the Kyoto Protocol, (United States Council for International Business Discussion Paper, 2008); Ernst-Ulrich Petersmann, International trade law and International Environmental Law: Environmental Taxes and Border Tax Adjustment in WTO Law and EC Law, Environmental Law, The Economy and Sustainable Development: the United States, the European Union and the International Community (Richard L. Revesz et al. eds., Cambridge: Cambridge University Press, 2008)

  34. 34.

    The non-discrimination obligations in the GATT, 1994 are enshrined in Art. I (Most-favoured Nation Treatment) and Art. III (National Treatment and Internal Taxation).

  35. 35.

    See Joost Pauwelyn, Carbon Leakage Measures and Border Tax Adjustments under WTO Law (Graduate Institute of International and Development Studies (IHEID), Georgetown University Law (posted 23 March 2012) <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2026879>.

  36. 36.

    Ibid.

  37. 37.

    See WTO, Japan — Taxes on Alcoholic Beverages ( WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R), Appellate Body Rep [24], the Appellate Body defined the legal status of Interpretative Note Ad Article III:2, Article III:2, second sentence, and the accompanying Ad Article have equivalent legal status in that both are treaty language which was negotiated and agreed at the same time. The Ad Article does not replace or modify the language contained in Article III:2, second sentence, but, in fact, clarifies its meaning.

  38. 38.

    WTO, Korea – Alcoholic Beverages, Appellate Body Rep [119]; WTO, Chile — Taxes on Alcoholic Beverages, (WT/DS87/17/Add.2 WT/DS110/16/Add.2 ), Appellate Body Rep [67]; and WTO, European Communities — Measures Affecting Asbestos and Products Containing Asbestos, [97]; See also WTO, Indonesia — Certain Measures Affecting the Automobile Industry (WT/DS54/R WT/DS55/R WT/DS59/R WT/DS64/R), Panel Rep [14.108].

  39. 39.

    Working Party on Border Tax Adjustments, BISD 18S/97, [18].

  40. 40.

    See supra note 37 [20]. In WTO, Indonesia — Certain Measures Affecting the Automobile Industry, supra note 38, the Panel followed this finding of the Appellate Body. Panel Report, Indonesia – Autos, [14.109]. See also

    WTO, Philippines — Taxes on Distilled Spirits (WT/DS396/15/Add.3 WT/DS403/15/Add.3), Panel Rep [7.31-7.37, 7.124-7.127].

  41. 41.

    GATT, Agreement on Technical Barriers to Trade, 1979, [14.25], “[t]he dispute settlement procedures…can be invoked in cases where a Party considers that obligations under this Agreement are being circumvented by the drafting of requirements in terms of processes and production methods rather than in terms of characteristics of products”. See P. Van den Bossche, N. Schrijver and G. Faber (2007) Unilateral Measures addressing Non-Trade Concerns, A study on WTO Consistency, Relevance of other International Agreements, Economic Effectiveness and Impact on Developing Countries of Measures concerning Non-Product-Related Processes and Production Methods, The Hague: The Ministry of Foreign Affairs of The Netherlands.

  42. 42.

    GATT Panel Report, United States-Restrictions on Imports of Tuna, DS21/R, (Sep. 3, 1991), BISD 39S/155, [5.13]. [hereinafter US-Tuna I].

  43. 43.

    Ibid, [5.15]; See also Konrad Von Moltke, Reassessing like products in Trade, Investment and the Environment, Proceedings of the Royal Institute of International Affairs Conference Chatham House 178 (Halina Ward and Duncan Brack, Eds., London, Oct., 1998).

  44. 44.

    World trade Organisation, the PPM Problem, <https://www.wto.org/english/tratop_e/envir_e/labelling_e.htm#:~:text=The%20'PPM'%20problem&text=WTO%20Members%20agree%20that%20countries,residue%20in%20the%20cotton%20itself>.

  45. 45.

    Steve Charnovitz, The Law of Environmental PPMs in the WTO: Debunking the Myth of Illegality, 27 Yale J. Int'l L. (2002)

  46. 46.

    Ibid. [68–69].

  47. 47.

    Ibid.

  48. 48.

    Joel P. Trachtman, WTO Law Constraints on Border Tax Adjustment and Tax Credit Mechanisms to reduce the Competitive Effects of Carbon Taxes, National Tax Journal, June 2017, 70 (2), [469–494].

  49. 49.

    Ibid.

  50. 50.

    See supra note 37.

  51. 51.

    WTO, India — Additional and Extra-Additional Duties on Imports from the United States (WT/DS360/AB/R), Appellate Body Rep [172].

  52. 52.

    Report of the Panel, United States - Taxes on Petroleum and Certain Imported Substances [5.1.9, 5.2.4] (L/6175 - 34S/136) (Jun 5., 1987) (adopted Jun. 17, 1987) [hereinafter US-Superfund].

  53. 53.

    Ibid., [5.2.7].

  54. 54.

    Supra note 37, [28].

  55. 55.

    WTO, Brazil — Certain Measures Concerning Taxation and Charges (WT/DS472/16/Add.2), Panel Rep [7].

  56. 56.

    Supra note 37, [28].

  57. 57.

    Ibid.

  58. 58.

    See, for example, WTO, Brazil — Measures Affecting Imports of Retreaded Tyres (WT/DS332/19/Add.6), Appellate Body Rep.

  59. 59.

    See WTO, United States — Measures Affecting Imports of Woven Wool Shirts and Blouses from India (WT/DS33/5) Appellate Body Rep [hereinafter US – Wool Shirts and Blouses] This ruling has been applied by the Appellate Body in inter alia: WTO, India - Patent Protection for Pharmaceutical and Agricultural Chemical Products (WT/DS79/R); WTO, European Communities — Measures Concerning Meat and Meat Products (Hormones) (WT/DS26/29). As a matter of rule, the burden of proof lies on the party claiming the exemption.

  60. 60.

    WTO, China — Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, (WT/DS363/19) Appellate Body Rep [239, 242].

  61. 61.

    Ibid.

  62. 62.

    WTO, Colombia — Measures Relating to the Importation of Textiles, Apparel and Footwear (WT/DS461/29) Appellate Body Rep [5.71–5.74].

  63. 63.

    Ibid, [5.71–5.74]; See also supra note 65, [246, 249]; WTO, European Communities — Measures Prohibiting the Importation and Marketing of Seal Products (WT/DS400/16/Add.7 WT/DS401/17/Add.7) Appellate Body Rep [163].

  64. 64.

    Paris Agreement, Art. 6.

  65. 65.

    See Stocker, T.F., Qin, Plattner, Tignor, Allen, Boschung, Nauels, Xia, Bex and Midgley, supra note 4.

  66. 66.

    WTO, United States — Standards for Reformulated and Conventional Gasoline (WT/DS2/10/Add.7), Appellate Body Rep [17].

  67. 67.

    WTO, United States — Import Prohibition of Certain Shrimp and Shrimp Products (WT/DS58/23), Appellate Body Rep, the Appellate Body accepted a measure because it was ”reasonably related“ to the protection and conservation of sea turtles, [141]; WTO, United States — Measures Affecting the Cross-Border Supply of Gambling and Betting Services (WT/DS285/26), Panel Rep [6.461] referring to WTO, Korea — Measures Affecting Imports of Fresh, Chilled and Frozen Beef (WT/DS161/12 WT/DS169/12), Appellate Body Rep [176]; and WTO, European Communities — Measures Affecting Asbestos and Products Containing Asbestos, supra note 36, [168].

  68. 68.

    WTO, China — Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum (WT/DS431/R WT/DS432/R WT/DS433/R), Appellate Body Rep [hereinafter China-Rare Earths] [5.251].

  69. 69.

    Panel Report, Canada-Measures Affecting Exports of Unprocessed Herring and Salmon, BISD 35S/98, [4.6] (adopted March 22, 1988) [hereinafter Canada-Herring].

  70. 70.

    Appellate Body Report, United States - Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (Oct. 12, 1998) [hereinafter US-Shrimp].

  71. 71.

    Supra note 71.

  72. 72.

    WTO, China — Measures Related to the Exportation of Various Raw Materials (WT/DS394/20), Appellate Body Rep.

  73. 73.

    Ibid, [357].

  74. 74.

    Supra note 68, [5.94]

  75. 75.

    See supra note 71, [16].

  76. 76.

    It may be clarified here that unlike in case of necessity, the objectives of prevention of carbon leakage and levelling of playing field among domestic industry, importers and exporters are not likely to preclude a measure from being justified under Article XX(g) owing to the differences in scope of “necessary” and “relating to”.

  77. 77.

    See supra note 71, [20].

  78. 78.

    See WTO, United States — Measures Affecting the Cross-Border Supply of Gambling and Betting Services, supra note 70, [6.489–6.492].

  79. 79.

    See WTO, European Communities — Measures Prohibiting the Importation and Marketing of Seal Products, Panel Report, [7.383].

  80. 80.

    United States - Tariff Measures on Certain Goods from China, [7.168]. The analysis of the necessity of a challenged measure includes an assessment of the importance of the pursued public policy objective not in general, but for the responding WTO Member, in light of the relevant public morals it has invoked as applicable in its territory.

  81. 81.

    The other pertinent goals would be Goal 11 (sustainable cities and communities), Goal 12 (responsible consumption and production), Goal 14 (life below water) and Goal 15 (life on land).

  82. 82.

    See WTO, United States — Tariff Measures on Certain Goods from China, supra note 80, [7.137].The Panel further held that “often the pursuit of non-economic concerns might lead to the adoption of measures that have economic effects – for instance, a restriction of imports so as to protect against, for example, risks to health has a clear economic effect and directly affects trade”.

  83. 83.

    Ibid.

  84. 84.

    Supra note 55, [7.568]. While accepting the Brazil’s objectives of bridging the digital divide and promoting social inclusion as constituting public morals, the Panel held that the WTO consistent-alternatives suggested by the complainants would have been more effective in achieving the objectives instead of Brazil’s measure. Therefore, the Panel held the measure to be not justified under Article XX.

  85. 85.

    WTO, India – Certain Measures Relating to Solar Cells and Solar Modules, Appellate Body Rep. (WT/DS456/AB/R), [5.58].

  86. 86.

    See supra note 58, [145]; See also supra note 55, [7.526];

  87. 87.

    See WTO, United States — Import Prohibition of Certain Shrimp and Shrimp Products supra note 70, [157].

  88. 88.

    See supra note 79 [5.299–5.301]; WTO, Indonesia — Importation of Horticultural Products, Animals and Animal Products (WT/DS477/21/Add.17 WT/DS478/22/Add.17), Appellate Body Rep, [5.99]; ibid.

  89. 89.

    World Trade Organization Committee on Trade and Environment, Note by the Secretariat, GATT/WTO Dispute Settlement Practice Relating to GATT Article XX, paragraphs (b), (d) and (g), WT/CTE/W/203, (March 8, 2002); See supra note, 71 [158].

  90. 90.

    Supra note 58, [229–230].

  91. 91.

    Prior Appellate Body jurisprudence underlines the importance of examining the question of whether the discrimination can be reconciled with, or is rationally related to, the policy objective of the measure. In addition, however, depending on the nature of the measure at issue and the circumstances of the case at hand, additional factors could also be relevant to the analysis; See WTO, United States — Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products (WT/DS381/49/Rev.1), Appellate Body Rep [7.316].

  92. 92.

    See WTO, United States — Import Prohibition of Certain Shrimp and Shrimp Products supra note 70, [150].

  93. 93.

    See WTO, European Communities — Measures Prohibiting the Importation and Marketing of Seal Products, Appellate Body Rep., [5.299–5.301].

  94. 94.

    Ibid.

  95. 95.

    Supra note 71, [25].

  96. 96.

    EC – Asbestos was one of the rare disputes in which Article XX chapeau requirements were fulfilled.

  97. 97.

    Pauwelyn, supra note 32; Jennifer Hillman, Changing Climate for Carbon Taxes: Who’s Afraid of the WTO? (Climate and Energy Policy Paper Series, The German Marshall Fund of the United States, Jul. 2013); Joel P. Trachtman, WTO Law Constraints on Border Tax Adjustment and Tax Credit Mechanisms to Reduce the Competitive Effects of Carbon Taxes, RFF DP 16-03 (Resources for the Future Discussion Paper Jan. 25, 2016).

  98. 98.

    Ibid, Hillman, 10.

  99. 99.

    See GATT, Working Party Report on Border Tax Adjustment, [22] <https://www.wto.org/gatt_docs/English/SULPDF/90840088.pdf> (accessed September 2020). Unable to reach any conclusion on this question, the GATT Working Party on Border Tax Adjustments observed that “the problem of structural differences in taxation and the question as to what extent indirect taxes and direct taxes were shifted into commodity prices was full of difficulty and of a very complex nature”. Some Members felt that this part of the Working Party’s examination made it clear that present tax adjustment based on GATT provisions did not ensure trade neutrality and that it was important that solutions be found to this problem. Most other members of the Group, however, were of the opinion that the discussion rather tended to confirm that the current practices of tax adjustments were as consistent as possible with the objectives of trade neutrality.

  100. 100.

    If a production method envisages a mechanism for the collection and subsequent use of the greenhouse gases released in the manufacture of a particular product, a border tax adjustment measure on the import of such a product would imply taxing a product (i.e. greenhouse gases) that has not been imported but merely produced as a by-product. For instance, in the case of sugar, the key by-product is molasses. Drawing an analogy from the present context, can a tax or charge be imposed on import of sugar that is in fact a tax on the molasses produced from a per unit production of the sugar that is imported?

  101. 101.

    Supra note 52.

  102. 102.

    GATT, Analytical Index to the General Agreement, Note by the Executive Secretary (June 1952) EPCTAAC/PV/26, [21] <https://docs.wto.org/gattdocs/q/GG/MGT/52-61.PDF>

  103. 103.

    See supra note 52, [5.2.4].

  104. 104.

    Paul Breton, Gareth Edwards-Jones, Michael Friis Jensen, Carbon Labelling and Low-Income Country Exports: A Review of the Development Issues, 27 Development Policy Review 3, 2009, [243–267].

  105. 105.

    Supra 97, Hillman.

  106. 106.

    See supra 48, Trachtman argues that the lowest risk of successful WTO legal challenge would be presented by a border tax adjustment (BTA) in relation to a national product based tax that does not vary by reference to carbon intensity of production but is set at a fixed rate for specified categories of products.

  107. 107.

    See UNCTAD, World Trade Law and Renewable Energy: The Case of Non-Tariff Barriers, <https://unctad.org/en/Docs/ditcted20085_en.pdf>.International standard setting will have a very significant impact on the WTO-compatibility of renewables measures, including any international standards that define a renewable energy source, norms of reliability, safety etc. for renewable energy technologies and operations.

  108. 108.

    Pertinently, a group of 18 WTO members have initiated plurilateral negotiations for the establishment of the Environmental Goods Agreement which seeks to promote trade in a number of key environmental products, such as wind turbines and solar panels.

  109. 109.

    See Mark Wu and James Salzman, The Next Generation of Trade and Environmental Conflicts: The Rise of Green Industrial Policy, NorthWestern University Law Review 108:401(2014), <https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1022&context=nulr>.

  110. 110.

    Future Allowance Import Requirement (European Commission, 2007), the proposal was drafted by the European Commission during the third phase of the EU Emissions Trading Scheme and was proposed to cover products at risk of carbon leakage, it included amending Article 29 of the 2003 ETS Directive, the benchmark was proposed to be the goods average emissions in the EU.

  111. 111.

    American Climate and Energy Security Act, 2009. Interestingly, this proposal was based on the recommendations provided by a private company and a labour union. The bill outlined specific standards for select sectors and also consumer products from countries that did not qualify as meeting specific standards. Countries were exempted either for low emissions or low levels of development.

  112. 112.

    Other measures include Carbon Inclusion Mechanism in the EU, that was proposed by France in 2009, and Border Adjustment Proposal for the Cement Sector, 2016.

  113. 113.

    A feed-in-tariff denotes a payment above the market rate paid to a small-scale producer of renewable energy by a large energy provider, Definition, feed-in-tariff, Collins Dictionary <https://www.collinsdictionary.com/dictionary/english/feed-in-tariff>.

  114. 114.

    Subsidies for renewable energy are provided in various forms, including rebates to consumers of such renewable energy or renewable energy products, a fixed purchase price offered to producers/suppliers of renewable energy, and preferential loans or grants provided to the producers of renewable energy.

  115. 115.

    See WTO, India — Certain Measures Relating to Solar Cells and Solar Modules (WT/DS456/20); WTO, United States — Certain Measures Relating to the Renewable Energy Sector (WT/DS510/7); WTO, European Union — Anti-Dumping Measures on Biodiesel from Argentina (WT/DS473/17).

  116. 116.

    Supra 109.

  117. 117.

    For instance, the EU has imposed both anti-dumping and anti-subsidy measures on biodiesel from the US, both anti-dumping and anti-subsidy measures solar modules from China, and anti-dumping measures on solar glass from Malaysia. Similarly, the United States has imposed anti-dumping duties as well as safeguard measures on certain crystalline silicon photovoltaic products from China and Taiwan. See Communication from the Panel, United States–Safeguard Measure on Imports of Crystalline Silicon Photovoltaic Products, WT/DS562/10 , 24 April 2020. China has filed a WTO dispute on US’ safeguard measures on these products for which the Panel has been composed.

  118. 118.

    United Nations Rio Declaration on Environment and Development, Principle 12.

  119. 119.

    World Trade Organisation, Committee on Trade and Environment, Report (1996) of the Committee on Trade and Environment, WT/CTE/1, 12 November 1996.

  120. 120.

    Internationally Transferred Mitigation Outcomes (ITMO) are units in the international emissions trading mechanism envisaged under the Paris Agreement, General rules in this regard are stipulated in of the Paris Agreement but details of the mechanism are still to be negotiated; See Paris Agreement, Art. 6(2).

  121. 121.

    Article 6.2 and 6.4 allow for market-based approaches for carbon mitigation whereas Article 6.8 allows for use of the non-market based approaches, with the latter providing for a broader scope for cooperation, including technology transfer and capacity-building measures.

  122. 122.

    Paris Agreement, Recital 3, Art.2, Art.4; United Nations Framework Convention on Climate Change, Art. 3.

  123. 123.

    The Agreement contains references to the CBDRRC principle in the Preamble (Recital 3) and various other provisions such as Article 2.2, 4.3 and 4.19.

  124. 124.

    To be clear, differential treatment based on countries’ respective responsibilities and capabilities would justify a measure as not being unjustifiably discriminatory under the chapeau of Article XX of the GATT 1994.

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Nedumpara, J.J., Pradeep, S. Implementing carbon tax: from rhetoric to reality. Indian Journal of International Law (2020). https://doi.org/10.1007/s40901-020-00122-z

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Keywords

  • Border tax adjustment
  • Emissions trading scheme
  • Carbon tax
  • GATT
  • National treatment
  • Likeness
  • Process and production method
  • General exceptions
  • Public morals