Border Adjustments for Carbon Taxes, PPMs, and the WTO

41 Pages Posted: 3 Mar 2020

See all articles by Matthew C. Porterfield

Matthew C. Porterfield

Georgetown University - Harrison Institute for Public Law

Date Written: 2019


There is a growing consensus that carbon taxes will be an essential component of the response to climate change. Most recent carbon tax proposals provide for a domestic tax on fossil fuels at the point of extraction with border adjustments of the tax on imports and exports of products from energy-intensive sectors. The border adjustment of the tax would both protect domestic industries from unfair competition and prevent the “leakage” of emissions that would occur if production of energy-intensive goods shifted to jurisdictions without comparable carbon pricing. The prospect of new import fees and export rebates, however, has raised concerns about the potential for conflict with the rules of the World Trade Organization.

The debate has centered on whether taxes on inputs that are used in the production process, but are not incorporated in the final product, may be border adjusted. The question of whether governments may regulate imported products based on “process or production methods” (“PPMs”) that do not affect the physical properties of the products has played a central role in discussions of the relationship between international trade rules and environmental measures over the last three decades. The WTO rules addressing the border adjustment of taxes, however, have a different and much older provenance. Governments have border adjusted consumption taxes for more than two centuries. The relevant WTO rules were drafted to accommodate this practice with regard not only to taxes on finished products but also to taxes on inputs used in the production process. Accordingly, border adjustments for carbon taxes are a WTO-consistent policy tool that can be used as part of the broader efforts to address climate change.

Suggested Citation

Porterfield, Matthew C., Border Adjustments for Carbon Taxes, PPMs, and the WTO (2019). University of Pennsylvania Journal of International Law, Vol. 41, Issue 1, p. 1 (2019), Available at SSRN:

Matthew C. Porterfield (Contact Author)

Georgetown University - Harrison Institute for Public Law ( email )

Washington, DC
United States
202-662-9608 (Phone)

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