WTO law and international emissions trading: Is there potential for conflict?

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Courtesy of Lexxion Verlagsgesellschaft mbH

In order to meet their emission reduction targets with minimum adverse effects on their economies, it is highly likely that UNFCCC Annex I governments will pursue emission reduction policies in such a way as to require of foreign products to mirror the “climate costs” of their production processes or to favour domestic “climate friendly” producers over foreign ones. Such treatments could occur in governing eligibility for participation in emissions trading or in the access to and amount of allocated tradable emission units. According to the rules of the Kyoto Protocol,1 a Party may choose not to engage in exchange of emission units with countries that have not joined the Protocol or that are not in compliance with their commitments. Similarly, Kyoto Parties might refrain from exchanges of emission units with private entities from those countries. Rules for the allocation and trade of emission units may also constrain the import of energy products generated by combustion of fossil fuels. Such climate measures could be confronting WTO rules that seek to guarantee non-discrimination and market access. Within WTO law, considerable “legal leeway” exists that gives flexibility to climate measures. In said context, the discussion in this article analyses the possibility for such “leeway”. It will, in particular, examine whether international emissions trading falls within the scope of WTO agreements, whether it might violate substantive rules of the WTO agreements, and if so, whether it could be covered by exemption clauses.

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