There is a general consensus among scientists that the climate change threat is significant, and in the view of some people this threat can even be described as ‘existential.’Footnote 1 Some governments have been taking this threat seriously over the past couple decades; in the United States, the degree of seriousness has varied by administration. The previous president said it was a hoax, but President Biden believes climate change is real and needs to be addressed. He hopes to make the United States a leader in efforts to address it.
Any effort to address climate change must include both domestic and international components. The domestic component involves some combination of taxes, regulations, and subsidies. And the international component means coordinating with others and adopting international agreements, as well as ensuring that domestic measures work well in tandem with the actions of other governments.
It is this last issue that the piece by Tim Meyer and Todd Tucker focuses on. When governments take domestic measures against carbon emissions, they worry about ‘carbon leakage’. As Meyer and Tucker explain it: ‘companies can shift their production to countries without meaningful domestic decarbonization measures and then export their products back into countries with tough decarbonization rules, thus evading efforts to address climate change’.Footnote 2 The result is that carbon emissions will not be reduced or the reduction will be significantly lower (although the precise scope of any such leakage is unclear and could use a stronger evidentiary basis).
To address this concern, Meyer and Tucker propose what they refer to as ‘A Pragmatic Approach to Carbon Border Measures’.Footnote 3 They offer this proposal in conjunction with a policy proposal for a ‘Green Steel Deal’,Footnote 4 which sets out their ideas for an ‘international climate club’ that decarbonizes the steel industry, and would involve a border tax of 25% on products from any country that does not join the club.
In this response piece, I offer a critique of various aspects of their proposals, with a focus on the carbon border measures but also making reference to the Green Steel Deal. In my view, the United States could lead the way in this policy area. However, an approach based on the carbon border measures suggested by Meyer and Tucker may backfire and have a much more limited impact than is needed to deal with the climate crisis. I group my key concerns into the following categories:
1. How the United States can be most influential in this area;
2. The difficulty of escaping the Trump legacy; and
3. The need for truth-telling on climate issues.
I will address each in turn. Overall, my view is that a good faith effort to cooperate with other countries is the best approach, and measures that will be perceived as confrontational should only be used as a last resort.
Finally, I will also respond to their discussion of the state of WTO law in this area, where I agree with them to some extent, although I will raise some areas of disagreement as well.
1. How the United States Can Win Friends and Influence People on Climate Issues
The history of carbon emissions shows clearly that the United States and Europe, because they were the first regions to industrialize, are the leading producers of these emissions. It took a while to realize the full significance of all the various kinds of pollution produced by industrialization, so perhaps they can be forgiven to some extent. Nevertheless, if we look at per capita carbon emissions over the years, it is the United States that is in the lead.Footnote 5
Largely based on that early industrialization, the United States and Europe are now among the wealthiest areas of the world. At the same time, many parts of the world have only industrialized to a limited degree, and still hope to make the same move up the development ladder that the United States and Europe did. As a result, when the United States and Europe now proclaim that carbon emissions must be stopped, the developing world understandably looks at such demands with suspicion. Why should the United States and Europe get to emit carbon in order to become wealthy, while others cannot?
There is an honest answer to this question and it might lead us to a political solution. The answer is that the United States and Europe, albeit unintentionally, messed up. We did not realize the impact of our industrialization on carbon emissions at the time. Now we do realize it, and are trying to make amends. The issue is, how best to do that.
The answer given by Meyer and Tucker seems to be that we should create an exclusive club of like-minded wealthy countries and impose tariffs on everyone else. Technically, of course, everyone can join the club, but in practice only the wealthy countries can afford to. The others would still like to industrialize and are skeptical they can do so if they move abruptly towards zero carbon emission economies. As a result, the climate club proposal is not likely to be well-received around the world, and that means its impact could be limited. There will be an exclusive club but also a large group that will remain outside of it. One can expect that the latter group will feel aggrieved by the unfair treatment they receive from the scheme.
A better approach might be the following. First, acknowledge the history here. As noted, while it may not have been intentional, and the impact not well understood at the time, the United States and Europe have emitted the most carbon dioxide and other greenhouse gases. In assessing who needs to do what going forward, we cannot just count the current year's emissions. If we want others to take our demands seriously, we have to account for the entire history, and not assume that the problem includes only today's emissions.
Second, and relatedly, we should offer to help developing countries deal with their emissions problem in a way that does not inhibit their industrialization. For example, the US government could assist – both monetarily and with various kinds of technical assistance – by replacing their coal power plants with energy production that emits no or less carbon.
These sorts of efforts are likely to be more effective than an approach that looks like ‘pulling up the ladder’ (i.e., now that we have industrialized, we are going to impose penalties on anyone else who does it the way we did it). The approach suggested by Meyer and Tucker looks like an exclusive club that only a limited number of countries have the resources to join. What we need instead is a good faith attempt to lead a non-exclusive movement that everyone can, and will, join.
2. The Need to Move Away from Trump's Unilateralism
If Hillary Clinton had won the presidency in 2016, the world would look very different in many ways. But Donald Trump won, and as president he took a number of actions that are, shall we say, memorable. In trade policy, one of those actions was to use Section 232 of the Trade Expansion Act of 1962 as a means of disguised protectionism. The Trump administration relied on the broad and vague description of ‘national security’ in this statute to use tariffs to protect its friends in the steel and aluminum industries from competition. In doing so, they have left a lasting taint on this provision that cannot be overcome by the Biden administration, no matter how much the Biden trade policy team explains that they are using Section 232 for good and noble purposes, and that they, appearances notwithstanding, are not being like Trump.
Meyer and Tucker do their best to make the case for using Section 232 as a practical way to impose a border tax in order to prevent carbon leakage, and as a way to start international negotiations on carbon emission issues. They contend that ‘Section 232 offers the clearest path to a US CBM, as well as to cooperative action on CBMs’.Footnote 6 But it is hard to overcome the history here. Maybe their proposal would have worked under a Hillary Clinton administration, but after Trump it just comes across as another US administration abusing domestic and international law to impose tariffs for its pet causes. If Biden uses Section 232 in this way, it will mean Trump's lawless approach has become a permanent part of US trade policy. What will be next? Section 232 tariffs on agriculture imports? Digital products? Canadian lumber? As Meyer and Tucker note, ‘section 232's text reflects a general grant of authority to the US President to raise trade barriers in response to virtually any threat or harm to the US economy from imports’.Footnote 7 Therein lies the problem, as it is the broadness of the statute that led to abuse during the Trump administration. Many Americans recognize this and have been trying to do something about it, with various Congressional proposals for reform under consideration.Footnote 8And while it is understandable that internal discussions among like-minded Americans might lead to the conclusion that Section 232 can be used without controversy abroad, it is worth raising these issues with non-Americans to get a broader perspective on what the reaction from the rest of the world will be.
In addition, it is not even clear that the Section 232 approach will work under US domestic law. Meyer and Tucker argue that Congress is unlikely to act on climate issues, and thus it makes sense for the Executive branch to use this existing grant of discretion. As they put it: ‘widespread adoption of carbon-reduction measures will depend on regulatory authority in many countries, which is often delegated to executive branch officials and is therefore subject to fewer veto points’.Footnote 9 But there are limits to executive discretion, and it is inevitable that any action here will be challenged in US courts. After a few years of the Trump administration appointing conservative judges to US courts, how confident should Meyer and Tucker be that Section 232 tariffs related to climate change will be upheld? Yes, the statute has a broad scope, but it is not unlimited,Footnote 10 and politics sometimes plays a role in judicial decision-making.
3. Addressing Carbon Emissions Is a Political Challenge that Requires Some Truth-Telling
A big part of the reason that Meyer and Tucker propose the use of Section 232 for their carbon border measures is the hopelessness they feel over the possibility that Congress will act, and the limited possibilities they see for legislative action. That is a fair concern. But advocates for reducing carbon emissions need to think about why that is. Why aren't Americans more worried about climate change? Why is political consensus so difficult to achieve here?
In my view, one reason is that many political leaders and policy wonks who make the case for action against climate change are failing to level with voters. They argue that climate change is: 1) an existential threat, and 2) almost costless for the average person to fix. They sometimes seem to claim that their proposed actions will actually make the economy better off, so there is a ‘win–win’ here.Footnote 11
It is not surprising that many people do not believe this rhetoric. The economics of various climate policies are complicated, and there are many different views within the discipline, some of which may support the idea that certain actions will lead to a win for everyone. But to the average person, this may not be convincing. Instinctively, it seems as though a problem of this size must be expensive to deal with.
What people concerned about climate change should do instead is think about how the politics has played out in the past, and how to change things going forward. Meyer and Tucker claim that their approach is politically realistic, arguing in their companion policy paper that the steel industry would be receptive to decarbonization. In support of this, they note that: ‘The American Iron and Steel Institute, the US trade association for steel producers, calls a “strong and effective” carbon border measure a key principle for how ‘to maximize the steel industry's role in reducing global greenhouse gas.’Footnote 12 But this evidence reveals only that the steel industry supports a carbon tariff, which is not at all the same thing as the industry supporting decarbonization. It is not surprising that the industry supports a tariff on its foreign competitors; full decarbonization is another matter however.
A serious alternative to their proposal for domestic regulations combined with carbon border measures is a non-discriminatory carbon tax. Meyer and Tucker are skeptical of this as a solution. They see this approach as a political loser, and it has been in certain countries at certain times. However, it is not at all clear that their approach would work any better. Enacting domestic regulation will be a challenge and a Section 232-based carbon border tax will face considerable pushback, not just from those concerned with executive overreach but also industries that rely on foreign steel inputs, which will be – and have been – affected by the imposition of tariffs. Sometimes we try new things just for the sake of avoiding the repeat of specific past failures. But the new things should at least be plausible, and sometimes we can learn from the old failures and turn them into successes.
4. Refining WTO Law as It Relates to Climate Change
The area of broadest agreement I have with Meyer and Tucker is on the need to refine WTO law to ensure that there is flexibility under WTO rules – including both the obligations and exceptions – to take domestic actions related to climate change. The jurisprudence on the core GATT/WTO provisions has been all over the place for years, leaving it very uncertain what measures governments can take in relation to climate change.
In some areas, however, I think Meyer and Tucker are leaving out important context in their description of DSB jurisprudence. For example, they state that ‘the current test for “like” products focuses on the commercial relationship between products’ and then cite to the Appellate Body report in EC–Asbestos. Their statement of the likeness test is accurate, but what it leaves out is that likeness is not the only element of the non-discrimination obligation. Indeed, in EC–Asbestos, the Appellate Body clarified that even with a broad reading of ‘likeness’, the ‘less favourable treatment’ element could keep the overall obligation from becoming too broad in scope:
even if two products are ‘like’, that does not mean that a measure is inconsistent with Article III:4. A complaining Member must still establish that the measure accords to the group of ‘like’ imported products ‘less favourable treatment’ than it accords to the group of ‘like’ domestic products. The term ‘less favourable treatment’ expresses the general principle, in Article III:1, that internal regulations ‘should not be applied … so as to afford protection to domestic production’. If there is ‘less favourable treatment’ of the group of ‘like’ imported products, there is, conversely, ‘protection’ of the group of ‘like’ domestic products. However, a Member may draw distinctions between products which have been found to be ‘like’, without, for this reason alone, according to the group of ‘like’ imported products ‘less favourable treatment’ than that accorded to the group of ‘like’ domestic products.Footnote 13
This elaboration of Article III:4 makes clear that the Appellate Body did not support a broad ‘likeness’ test that would lead to a wide range of statutes/regulations being found in violation (an approach that some GATT panels had arguably taken).
Unfortunately, over the years, the Appellate Body has gone back and forth on the precise scope of many of the non-discrimination provisions, and at this point, there is no Appellate Body around to provide further guidance.
In the area of exceptions, they point to concerns with the narrow scope of interpretation of these provisions, and note that US Trade Representative Katherine Tai has raised these issues, perhaps signaling a change in US policy. I agree with them that it would be valuable if USTR would be willing to reconsider its traditional position here.Footnote 14
Overall, I think they are correct to be concerned about how WTO law would adjudicate domestic actions on climate change. It may be difficult to address these ‘policy space’ points solely in the area of climate change though, as the issues are much broader. Addressing them only for climate change, while leaving the current approach intact for other policies, would lead to an inconsistent approach to the various non-trade policies that come into conflict with core trade principles.
I do worry about one statement they make in this context, though: ‘Government measures are, however, rarely designed on the basis of ideals alone. Instead, they typically include exceptions, variances, or differential treatment designed to ensure sufficient political support for the measure’ (emphasis added).Footnote 15 If this last part refers to offering measures such as domestic content requirements for the benefit of the domestic industry in order to generate political support, then I think WTO law should remain strict and no flexibility offered here. Such measures may, in some instances, facilitate the adoption of new measures, but they will undermine the fight against carbon emissions by limiting competition and pushing the industry towards less efficient production, and therefore should be avoided. Despite any short-term political wins, in the long run they can slow down the decarbonization process by creating vested interests who will lobby against more effective policies.
5. Conclusions
Due to their economic size, smaller countries have a limited ability to push their views on other countries, whereas larger countries have much more power to do so. When combined with military might and an influence derived from decades of providing a ‘security umbrella’, this power is enhanced. As a result, in today's world, the United States has the greatest ability to influence others, and it often tries to do so.
But how should it use this power? What is the most effective approach? There are risks to overdoing things. If the United States asks for everything, other countries may tire of the constant requests. Longer copyright terms, gender rights, ‘unalienable rights’, and better treatment of foreign investors have all been on the US list, as different administrations put forward their own preferences. It is a problem if there are constantly changing requests depending on the administration; and the United States does not always live up to its own demands, which undermines these exercises. It is also a problem if the United States is often more confrontational than cooperative.
But the state of the climate today seems like an issue that justifies trying to use this influence. The question is how best to do so. Meyer and Tucker have titled their approach to carbon border measures a ‘pragmatic’ one. Politics is an imprecise science, though, and what is politically feasible is something that will always be hotly debated. My view is that their proposals are not politically realistic, either in the domestic or international arenas. We would be better off if American politicians would make a more forceful and honest case with the public – including both domestic voters and foreign governments/citizens – about the history of the climate change problem and what approach would be most effective to solve it.
