US legislators should keep potential WTO challenges firmly in mind when drafting a new federal climate change bill, a congressional committee has advised.
On 31 January, the staff of the House Committee on Energy and Commerce issued a ‘white paper’ on potential climate change legislation, with a particular focus on competitiveness concerns and ways to engage developing countries. The paper is part of a series aimed at providing guidance to lawmakers in crafting a mandatory, economy-wide climate change programme for the United States.
As a starting point, the paper notes that Congress is unlikely to adopt legislation committing the US to reduce its greenhouse gas emissions without ‘action by developing countries as well’. The task facing lawmakers is thus to craft legislation that not only limits US carbon emissions, but also induces developing countries to curb the growth of their emissions
- on a timetable that meets both environmental and trade competitiveness concerns;
- in a manner that is reasonably certain to withstand a WTO challenge; and
- on terms that pose acceptable risk to US interests in the event of a negative WTO determination.
The paper examines three broad approaches for achieving this goal:
- border adjustments – trade-related policies that use tariffs, taxes or other mechanisms, such as requiring foreign goods to the US to be accompanied be emissions allowances;
- performance standards – a ‘non-market-based’ type of regulation, such as emissions standards or carbon intensity-based regulations; and
- carbon market design – imposing conditions for other countries’ access to and participation in the US carbon market established in a climate change bill.
The committee concluded that there was a “general expectation that a WTO challenge is likely regardless of what approach Congress takes.” It recommended further discussion on the advantages and disadvantages of each alternative, including which of them would be the most likely to result in a prompt resolution of any WTO challenge. Legislators should also keep in mind the need to align the domestic climate change bill with any international obligations the US might take on under a post-Kyoto Protocol agreement, as well as the bill’s potential impact on the negotiations and conclusion of a new global climate treaty.
Current Legislative Proposals
Two main climate- and energy-related bills are under preparation in the Senate. Both are based on the ‘cap and trade’ principle, under which energy-intensive enterprises would be allocated CO2 emission rights. A certain portion of the allowance would be cost-free and another would be auctioned. The Low-carbon Economy Act sponsored by Senators Bingaman and Specter calls for limiting CO2 emissions to 2006 levels by 2020, while the bill being developed by Senators Lieberman and Warner would require a 10-percent reduction from that level by the same deadline. Both proposals would also allow regulated industries to buy credits through climate-friendly projects in foreign countries, as well as foresee the possibility of requiring US importers of energy-intensive goods to submit allowances in an amount that would compensate for the economic advantage resulting from the products not being subject to emissions-related regulation in their countries of origin (Bridges Year 10 No.6 page 16).
Representatives Dingell and Boucher are working on a House bill along similar lines. Mr Dingell has suggested that a both cap-and trade regime and a carbon tax would be necessary for the US to meet realistic emission reduction goals.
While WTO compatibility is an obvious concern for legislators everywhere, the issue could also be addressed – at least in part – through a clarification of global trade rules to ensure that the institution contributes, or at least does not hinder, efforts to tackle climate change.