Climate Change and the Trading System

Abstract

As the global community moves to forge a new climate change agreement, complex questions arise concerning the implications for the international trading system. This was the topic of a meeting in Toronto on October 26 and 27, 2009 that brought together experts from the two communities – trade policy and climate change. The discussion focussed on border carbon adjustments, on the implications of free carbon emission allowances for particular industries in cap-and-trade systems, which may run afoul of World Trade Organization (WTO) rules on subsidies, and more generally on issues relating to subsidies. Given the present uncertainties about how these features of climate change action may evolve, the group recognized the risk of mounting pressures on the WTO dispute settlement system and indeed the possibility of a ‘train wreck’ in the WTO. Accordingly, ways need to be found to avert the dangers so that the two important objectives can be met – dealing with climate change while preserving a sound trading system.

Keywords: climate change, UNFCCC, WTO, dispute settlement, border carbon adjustments

JEL Classification: F13