Framework Proposal for a US Upstream Greenhouse Gas Tax with WTO-Compliant Border Adjustments

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.

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Date

March 15, 2018

Authors

Brian Flannery, Jennifer Hillman, Jan Mares, and Matthew Porterfield

Publication

Working Paper

Reading time

1 minute

Key findings

  • 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.

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