During the summer, the Graduate Institute held the lecture “Does our Alarming Climate Crisis Demand Border Adjustments Now?” by John S. Odell, Professor Emeritus of International Relations with the University of Southern California, who researches the governance of the world economy-why governments and international organizations do what they do in international economic relations, and how they could do better-and climate change.
Odell presented a tool which would allow countries to scale up climate action at home without risking seeing their efforts undermined by carbon leakage is border carbon adjustment. He explained what a border carbon adjustment (BCA) could look like if it is to be effective; compatible with the rules of the World Trade Organization (WTO); and sensitive to development considerations.
According to him, the global climate crisis is now as an emergency. The Paris Agreement was not enough, and now even it is endangered. A new proposal would accelerate mitigation in high-polluting countries, which seems to be a politically feasible idea.
In his studies, Odell listed the highly polluting-countries using CO2 per capita. Surprisingly the top 10 are Qatar, Trinidad and Tobago, Kuwait, Bahrain, United Arab Emirates, Brunei, Saudi Arabia, Luxembourg, United States, and Oman. His new proposal for border carbon adjustments (BCA) posits that each country that imposes positive net taxes on fossil fuels use at home should extend the same treatment to all goods it imports – unilaterally if necessary. Exempting all exports from countries whose CO2 emissions per capita are low. He believes this proposal is compatible with the WTO laws and minimizes new transactions costs.
On the WTO Article XX – General Exceptions – it states that
“Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.”
To qualify under Article XX, the BCA must not have been applied in a manner that constitutes a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or be a disguised restriction on international trade.
The objective CO2/capita threshold discriminates among countries, thus likely inconsistent with GATT Article 1. However, it identifies countries where the same relevant conditions do not prevail. Therefore, this discrimination is justifiable. Countries use regulations as well as taxes. Not crediting imports regulations probably would be ruled as “arbitrary” discrimination. So, it should also offer to credit costs due to regulations that are comparable in reducing emissions to those of the importing country.
The goal is to stop carbon leakage by adopting a policy change in high-polluting countries with more effective goals to direct incentive for governments and to reach behind the border emissions. One difficulty would be to reach an official agreement on ways to recognize the carbon prices producers pay through purchases of traded emission permits in different jurisdictions, to allow deducting costs due to these spreading but diverse cap-and-trade schemes from BCAs.
Odell believes that policymakers should compare the likely benefits and costs of this proposal with the risk of allowing the Paris regime to become a dead letter. If carbon-taxers defend Paris by imposing a tangible cost on free-riding, they will increase the odds that all other parties will stay the course.
In sum, if this proposal were developed and adopted in high-emitting countries, export interests would use their clout for more serious mitigation policies to lift the BCAs. Also, governments would have a direct incentive to improve climate policies, as already favored by majorities in their own interest. Moreover, this would reduce or eliminate the import surcharge facing their exports and would help save themselves from more intense climate damage. Last, BCA regulations could be repealed. Multilateral agreements on climate and trade would be ideal, excellent proposals for improvement have been made, and efforts should continue. However, decades of this work have failed to generate a global consensus that is sufficiently effective for climate stability. The global climate crisis is now an emergency: it is far too alarming to continue postponing legal unilateral or plurilateral border carbon adjustments. Odell finished his lecture inviting everyone who knows other groups who would like to hear about this BCA proposal to contact him at firstname.lastname@example.org
This blog post was written by Patricia Zanini Graca. Patricia is a second-year graduate student at Seton Hall’s School of Diplomacy and International Relations. Patricia graduated in Business Administration and she holds an MBA in Business and Marketing. Patricia is a UN Digital Representative at the Center for UN and Global Governance Studies, the Executive Editor at the Journal of Diplomacy, and the Director of International Affairs at the Graduate Diplomacy Council. She specializes in International Organizations and Global Negotiations & Conflict Management.