Focal Points for the Global Introduction of Carbon Tariff
Carbon tariffs, a concept first proposed by former French President Jacques Chirac, are gaining increasing attention from the world’s leading countries against the backdrop of heightened concerns about climate change. The carbon tariff is a special tariff on carbon dioxide emissions imposed by a sovereign country or region on imports of energy-intensive products. It is essentially a border tax regulation of carbon tax. The taxpayer of a carbon tariff is mainly the consignor, consignee or owner of the goods when exporting their energy-intensive products to other countries that do not accept the pollutant reduction standards. Recent years, some countries have started to explore and experiment with carbon tariffs. For example, in June 2009, the US House of Representatives passed the US Clean Energy and Security Act, which reaffirmed the unilateral measure of carbon tariffs, requiring the purchase of international reserve allowances for exports to the US from countries that do not reduce emissions. The EU Parliament voted to establish the Carbon Border Adjustment Mechanism (CBAM), which would allow countries trading with the EU to face carbon tariffs on some of their exports to the EU from 2023 if they do not comply with carbon emissions regulations. Since the outbreak of the Russian-Ukrainian war, the traditional energy supply and trade chains have been deeply fragmented and Europe is at serious risk of “oil shortages” and “gas cuts”. Major countries, led by Europe and the United States, are aware of the possibility of losing the primacy of traditional oil and gas sources. Against this backdrop, Europe and the US need to consider increasing their voice in ‘peak carbon’ and ‘carbon neutral’ trading. Currently, US and European carbon tariff legislation is gaining significant momentum and the outlines of a US-European led global carbon tariff coalition are emerging.
The main controversies currently facing carbon tariffs include the question of whether they violate the WTO’s principles of non-discrimination and fair trade and whether they lead to double taxation.
The main applicable provision for carbon tariffs is Article 20(g) of the GATT. Compliance with Article 20(g) is subject to the following conditions: firstly, it protects exhaustible natural resources, secondly, it is related to the protection of exhaustible natural resources, and thirdly, it is implemented in conjunction with measures to restrict domestic production or consumption. In the case of carbon tariffs, the purpose of the tariff is to reduce carbon dioxide emissions and protect the cleanliness of the atmosphere while preventing changes and declines in biological species caused by climate change, which meets the criteria for the protection of exhaustible natural resources. The interpretation of “is related to the protection of exhaustible natural resources” specifically means that it must be “primarily aimed at protecting exhaustible natural resources and need not be a measure that is necessary or essential for the protection of exhaustible natural resources”. be the main purpose of a carbon tariff. In other words, in some countries’ current carbon tariff policies, exemptions for zero-emitting countries and LDCs are inconsistent with environmental objectives, as they are not clearly and directly linked to environmental objectives, and instead may lead to carbon leakage, to the detriment of the achievement of atmospheric environmental objectives. This does not meet the second condition of GATT 20(g). Therefore, the implementation of a carbon tariff could lead to a loss of benefits for some developing countries with higher emissions. For the third condition, implementation in conjunction with measures to restrict domestic production or consumption requires that restrictions on production and consumption of domestic and foreign products are applied in an equitable manner. It is important to clarify that “together with” is not the same as “identical treatment” under the national treatment principle of Article 3 of the GATT, because together with requires only corresponding domestic measures, not “identical treatment” of imports and similar domestic measures. The same treatment” of imported and domestic products of the same kind is not required. In summary, the question of whether carbon tariffs are WTO-compliant is how the framers of carbon tariffs meet the second statement of Article 20(g) of the GATT and the question of how to compensate the loss of benefits to developing countries resulting from the widespread imposition of carbon tariffs on a wide range of countries.
Another issue that may arise from a carbon tariff is the double taxation of carbon emissions. Currently, the world’s major economies are gradually moving towards the development of carbon trading markets within their countries and the imposition of higher taxes on heavy polluters and high emitters within their countries. The ongoing initiatives within countries and the carbon tariff have the same purpose, which could lead to double taxation. Under ideal conditions, carbon tariffs could be given greater flexibility. Instead of importing countries and dispute adjudication bodies forcing other countries to adopt substantially the same domestic legislation and policies as the importing country, exporting countries should be given relative freedom to adopt comparable effectiveness, meaning that environmental measures in the exporting country should be exempted if they are comparable in effect to those in the importing country. However, this comparable effectiveness is difficult to quantify in practice due to the different levels of implementation of environmental policies in different countries and the asymmetry between the effectiveness of environmental initiatives and the time spent on them. Therefore, to address the issue of double taxation, carbon tariff makers and international organizations need to specify a set of detailed indicators of the effectiveness of environmental measures that are recognized by most countries.
By JIN Kaiwei
