U.S. Federal Climate Policy and Competitiveness Concerns: The Limits and Options of International Trade Law

Abstract

One of the major obstacles toward mandatory limits on greenhouse gas emissions in the United States is the impact of such limits on the international competitiveness of US firms. Limits on greenhouse gas emissions -- be they in the form of regulation, a carbon tax or a capand-trade system1 – may impose extra costs on US industries. Where foreign firms do not bear similar costs, US firms may lose their competitive edge. In particular, with a US climate policy in place, goods from countries without mandatory carbon restrictions – such as China, Brazil or India – may gain a price advantage over US goods. It is exactly this asymmetry that led the US Senate to reject the Kyoto Protocol, an international agreement that covers 55 per cent of global emissions but does not require emission cuts from developing countries. The competitiveness impact of US climate policy may play out both at home (on the US market) and abroad (on world markets). It can be particularly acute for energy-intensive manufacturers such as the iron and steel, aluminum, cement, glass, chemicals and pulp and paper industries.