Working Paper

WTO-Compatible Methodologies to Determine Export Rebates and Import Charges for Products of Energy-Intensive, Trade- Exposed Industries, If There Is an Upstream Tax on Greenhouse Gases

Oct 30, 2018 | Jan Mares, Brian P. Flannery

Summary

The Compendium applies our recently proposed Framework to develop export rebates and import charges for products in 35 EITE sectors in the context of an upstream GHG tax.

Overview

Based on the companion Framework report, the Compendium describes approaches to determine export rebates and import charges (Border Tax Adjustments: BTAs) for products in 35 Energy Intensive Trade Exposed (EITE) industry sectors. These sectors are largely drawn from those considered in 2009 in connection with the Waxman Markey cap and trade bill. However, trade circumstances have changed significantly since then, notably in energy. Moreover, the Framework and Compendium require information beyond CO2 emissions and information from other sectors that we do include: coal mining, oil and gas production, petroleum refining, electricity and industrial gases.

Information to determine BTAs is available from GHG regulatory reporting by facilities in many nations, or from well-established voluntary reporting guidelines developed and endorsed by most EITE sectors. Because BTAs apply to products, to calculate them manufacturers must extend and transform information for facilities: first, to account for GHG emissions from materials and electricity purchased from suppliers (often referred to as scope or tier 2 emissions), and second, to allocate to specific products their share of emissions from a given facility.

The Compendium describes how this may be done and special circumstances and challenges that may apply in each sector, e.g., recycling, and cogeneration. It also proposes ways to simplify administrative efforts to allocate emissions to product slates that may number in the thousands in some sectors. The goal is to achieve the dual tasks of utilizing an efficient upstream GHG tax with WTO-compliant BTAs without undue administrative burden.

Import charges are determined and applied without discrimination based on national origin—as required by WTO (see Framework section 3.2). Accordingly, import charges do not take account of GHG policies, regulations and costs imposed in exporting nations—which differ enormously among US trading partners. Consequently, we anticipate that foreign affiliates of multinational companies, foreign firms and their trade associations will be motivated to seek appropriate domestic rebates for their exports to the US.

We recommend that EITE sectors begin now to undertake voluntary pilot programs to develop prototype methods suited to their particular circumstances. These may take time, but appear to be less complex than efforts starting in the 1990s (and still ongoing as circumstances evolve) to estimate GHG emissions from facilities and operations.