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Global Warming: The Gathering Storm

Russia resurrects the Kyoto Protocol and the prospect of either mandatory CO2 emissions cuts for U.S. utilities, or the start of a global trade war.
Fortnightly Magazine - August 2004

well established. In fact, with Kyoto scheduled to enter into force, the EU can justify the measures as related to the global effort to reduce CO 2 emissions.

Third, a CO 2 tax on U.S. goods would be primarily aimed at, and reasonably related to, the conservation of the climate, especially if the carbon tax revenues were transferred to a third party fund dedicated to financing projects to address climate change, such as the World Bank's Prototype Carbon Fund. The PCF was created "to promote project-based mechanisms that will help countries to reduce global concentrations of greenhouse gases and therefore minimize the adverse impacts of climate change on developing countries." 13 By dedicating the CO 2 tax revenue to a dedicated fund to finance carbon reduction projects, the trade measure would not be "disproportionately wide in its scope and reach in relation to the policy objective of protection and conservation of [the climate]." 14

Fourth, because the carbon tax would be calculated based on the cost of CO 2 reductions imposed on EU producers, the restriction would apply even-handedly both to domestically manufactured products (which already are taxed to the extent that they are subject to EU ETS, or, in the case of automobiles, to the CO 2 reductions) and to imported products. In other words, the restriction should not create an unfair advantage to domestic products. This can be achieved by calculating the CO 2 allowance costs on a per-unit basis for various products, such as cement, glass, brick, ceramics, and paper.

Fifth, given the well-documented and extensive international efforts to persuade the United States to reduce its domestic CO 2 emissions, an EU CO 2 tax on U.S. imports could hardly be said to be arbitrary, unjustified, or attainable by some other less restrictive means. The United States would have difficulty arguing that the CO 2 tax is arbitrary if not also applied against other large CO 2 emitters not bound by Kyoto, such as China and India. The Kyoto Protocol represents a multilateral treaty which, right or wrong, was negotiated by the industrialized nations to not impose mandatory CO 2 reductions on the transition economies of China and India. While the United States has not ratified Kyoto, it is required by international law "to refrain from acts which would defeat the object and purpose of the treaty." 15 Thus, the United States may not claim that a CO 2 tax is arbitrary if it does not apply to goods from China or India, and therefore in violation of Article XX's Chapeau, as such a position would offend the fundamental basis of the bargain struck under Kyoto Protocol that the United States is duty-bound to uphold, even if it chooses not to ratify.

How the U.S. Can Avoid a Trade War

In the vacuum created by the administration's withdrawal from the Kyoto Protocol, a number of states have stepped forward with legislative and policy initiatives to reduce greenhouse gas emissions. 16 Fourteen states have adopted renewable portfolio standards that require electricity suppliers to derive an increasing percentage of supply from