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The authors are grateful to Brad McDonald for important contributions and to Simon Black, Vitor Gaspar, Philippe Wingender, and WTO staff for very helpful comments received in their individual capacity, and to Danielle Minnett, Clara Thiemann, and Lucia Gruet for first-rate research assistance.
See Keen, Parry, and Roaf (2021) for a graphical explanation.
Typical examples of EITE industries include aluminum, steel, cement, iron, chemicals, plastics, and refined petroleum.
A review by Ellis, Nachtigall, and Venmans (2019) attributes these findings to low carbon price levels, carbon tax exemptions for industry, and generous free allowances under ETSs. See Misch and Wingender (2021) and Verde (2020) for further detail on the literature.
See Misch and Wingender (2021). Their approach employs a simple accounting framework to derive leakage rates from estimates of energy price elasticities of cross-border carbon flows using panel data on carbon in trade flows for advanced countries from Organisation for Economic Co-operation and Development (2021).
GATT Article III:2 in combination with GATT Article II:2 (a) allows for the imposition of internal taxes or charges of any kind on imported products as long as they do not exceed those applied to “like domestic products” or in respect of any “article from which the imported product has been manufactured or produced in whole or in part.”
The only BCA implemented so far is at the subnational level applying to electricity imported into California (Pauer 2018).
Mehling and others (2019, 457 onwards); Hillman (2013, 6–8). Some commentators raise the unsettled legal issue that applying BCAs to “like” products based on the carbon intensity of their production processes would result in a differing treatment between physically indistinguishable products (see, for example, Kendall 2012, 71–73), which would then automatically need to be justified under GATT Article XX.
For example, Kendall (2012, 71–73).
Note to GATT Article XVI; and fn. 1 to Article I of ASCM. See also Flannery and others (2020, 17), and Pauwelyn and Kleimann (2020, 8).
GATT Article XX (b) allows measures (in conjunction with restrictions on domestic production or consumption) necessary to protect human, animal, or plant life or health and GATT Article XX(g) allows measures relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.
There have, however, been recent suggestions for the adoption of a Multilateral Carbon Tax Treaty (see Falcao 2019).
See https://joebiden.com/climate-plan. Recent legislative proposals for carbon taxes in the United States have also contained BCAs (see www.carbontax.org/bills).
For example, based on cross-country input-output tables and data on emissions factors which is reasonably reliable for power generation and EITE industries (see Organisation for Economic Co-operation and Development 2021).
See Keen, Parry, and Roaf (2021) for exploration of economic aspects of these issues.
See Bacchus (2016) and World Resources Institute (2020). Flannery and others (2020) and Mares and Flannery (2018) discuss methodologies for measuring embodied at the plant and product level for goods produced by 35 EITE industry classifications imported into the United States using existing international standards.
An interpretation of any of the multilateral trade agreements can be adopted by a majority of three-quarters of WTO members according to Article IX and X of the Marrakesh Agreement, but in practice there has never been any instance where any decision has been adopted without consensus.