A Pragmatic Approach to Carbon Border Measures

Abstract

This article offers the justification for a type of carbon customs union in which countries with a diverse range of high-ambition domestic climate measures would adopt a common external tariff on carbon intensive imports from countries outside the union. We explain why any pragmatic approach to carbon border measures (CBMs) is likely to create problems under prevailing interpretations of the World Trade Organization's (WTO) primary rules. Given the urgency of the climate crisis and the fact that the legality of a CBM - no matter how designed - will be a question of first impression for any WTO dispute panel, WTO consistency should take a backseat to considerations of domestic legal and political feasibility in designing a CBM. Instead of trying to fit a CBM into current understandings of WTO rules, WTO members should renegotiate WTO rules to permit a range of aggressive, but likely trade-restrictive, decarbonization measures. Having said that, we also recognize that WTO negotiations may take longer than optimal from a decarbonization standpoint. We therefore suggest an approach that would allow WTO members to take advantage of flexibilities that existing WTO rules afford.