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Holzer, Kateryna --- "Emissions trading and WTO law" [2016] ELECD 1502; in Weishaar, E. Stefan (ed), "Research Handbook on Emissions Trading" (Edward Elgar Publishing, 2016) 326

Book Title: Research Handbook on Emissions Trading

Editor(s): Weishaar, E. Stefan

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781784710613

Section: Chapter 14

Section Title: Emissions trading and WTO law

Author(s): Holzer, Kateryna

Number of pages: 27

Abstract/Description:

The multilateral trading system, originally set up by the 1947 General Agreement on Tariffs and Trade (GATT) and further developed by the 1995 WTO Agreement (Marrakech Agreement), is aimed at liberalizing trade, promoting competition and at facilitating economic growth and development. WTO rules impose constraints on policy space that is available for taking climate change mitigation and adaptation measures to the extent that domestic climate policy measures may have negative impacts on trade. This is particularly the case regarding emissions trading schemes (ETSs), which increase prices of traded goods and services and affect conditions of international trade. The interaction of emissions trading and WTO rules usually begins with an introduction of regulatory measures or design features of an ETS that are aimed at preventing carbon leakage. Carbon leakage is the situation where the total amount of global emissions increases due to the expansion of emissions-intensive production elsewhere. Under the ‘pollution haven’ hypothesis, faced with increased production costs resulting from participation in an ETS, domestic emissions-intensive industries move their production facilities to countries without emissions trading systems or lose their market shares to imported products. The problem of carbon leakage under an ETS can be addressed through different instruments, including free allocation of emissions allowances, income-supporting recycling of ETS revenues, use of border adjustment measures and so on. None of these instruments is ideal. All of them have their shortcomings in terms of effectiveness, implementation feasibility, costs for state budget and compliance with WTO rules.