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Ambitious US climate policy will require border adjustments to protect energy-intensive, trade-exposed industries from unfair competition—but formulating policies compatible with obligations under the World Trade Organization has proved challenging.
- This report describes how to design border adjustments (rebates for exports and a charge on imports) that are compatible with rules under the World Trade Organization.
- The framework is based on an upstream GHG tax on oil, gas and coal, and process emissions from energy intensive, trade-exposed industries.
- The approach uses existing, objective methods to measure GHG emissions from facilities but extends them in two ways: to include emissions from products of suppliers, and to allocate emissions to the entire slate of products manufactured by a facility.
- For nations that adopt it, the framework fundamentally shifts the focus of efforts to mitigate emissions connected to international trade from a system based on where goods are produced to one based on where they are consumed.