Trading Up Kyoto: A Proposal to Amend the Protocol, Part I

Abstract

This is the first of two Articles that analyze the dynamic and complex relation between international trade law and the Kyoto Protocol. These Articles argue that the Kyoto Protocol undermines efforts to negotiate a meaningful climate change treaty, and alternatively, they propose a new treaty framework to replace the Protocol. This first Article sets out the trade and climate treaty conflict and demonstrates that the problem cannot be addressed within the current framework of international trade law. Developing nations that are now emerging economies and major greenhouse gas emitters are not bound by targeted emissions reduction obligations under the Kyoto Protocol. Their exclusion in an era of trade liberalization under rules of the World Trade Organization (WTO) creates loss of competition and leakage concerns among developed country signatories. These concerns have caused developed nations, such as the United States, to reject Kyoto Protocol obligations. Others, notably Canada, Japan, and Russia, have also rejected continued obligations under the Protocol. Solutions to these problems conflict with WTO rules, as demonstrated by efforts by some nations to promote their renewable energy sector in a manner that also addresses competition concerns. Specifically, countries have provided renewable energy subsidies (RES), but conditioned their availability on the use of domestic content. WTO member nations have challenged such RES under WTO rules, including specific agreements, notably the Agreement on Subsidies and Countervailing Measures (ASCM) and Trade-Related Investment Measures (TRIMs). In one recent dispute, a WTO Panel ruled that the RES violate WTO law. Further, these measures do not qualify for environmental exceptions under WTO law, for both legal and normative reasons. A new climate change treaty is needed in 2015 to addresses the loss of competition and leakage problems.

Keywords: climate change, trade, renewable energy, subsidy, RES, China, India, Solar, Wind, leakage, coal

JEL Classification: F10, G18, K00, K32, K20, K10, K33