Trade Experts in Environmental Issues Say Issue Likely to Cause Conflict at WTO

A former World Trade Organization appellate body member and a longtime U.S. trade representative's environment advisory committee member agree that an attempt to create a carbon adjustment mechanism by the European Union is likely to violate trade law and support protectionist aims.

James Bacchus, the former appellate body member and former congressman, said that he believes free trade is consistent with protecting the environment, but that the best way to make a border adjustment non-discriminatory is to pair it with an economy-wide carbon tax, and neither the EU nor the U.S. will be passing one soon. Instead, the EU mechanism will be tied to their emissions trading system, and that system gives free allowances to some sectors. “Europeans have talked about the fear that emissions will be shifted offshore. This is a legitimate concern,” Bacchus said during a March 17 webinar hosted by the Peterson Institute for International Economics. But, he said, there is no agreed way to measure carbon emissions in making steel, cement or other products.

Jeffrey Schott, a PIIE fellow and the former environment advisory committee member, said that without a carbon tax, how will the carbon cost be measured? With energy efficiency standards in the buildings where the work is done? In the manufacturing processes? Whether the government provides clean energy subsidies? “I think the politics of this argue that you need to have a moratorium against carbon border adjustment mechanisms. Otherwise, those types of initiatives are bound to be captured for protectionist interests,” he said.