Unit 10 - Environmental Equalization Tax Problem

Recent public discussions include such concepts as carbon taxes, as well as the specific problem of how to “equalize” such taxes across borders, so that such a tax does not disadvantage local producers either exporting their goods, or competing locally with imported goods (where the foreign producer might not have paid such a tax ). A concrete example is presented by H.R. 1337, introduced in the first session of the 111th Congress as the “America’s Energy Security Trust Fund Act of 2009.” Is H.R. 1337 consistent with US obligations under the GATT/WTO agreement? Please analyze the bill’s individual provisions, and if you think one would run afoul of the GATT/WTO suggest a concept and language to resolve the problem with WTO compliance.

This bill dates back to 2009, and in effect before the fracking and oil shale industries ramped up US production in the past 4-5 years, until the US was at or at least on the verge of becoming a net oil exporter (without regard to carbon concerns with fossil fuels, this was embraced under the Trump Administration as their energy independence agenda).  How would being an oil exporter have affected what might be subject to adoption?  The bigger issue that has been actively mooted is whether border equalization taxes might be permitted based upon measures like BTU (British Thermal Unit) content, for example in steel imports compared to “less carbon intensive” domestically produced steel.  The BTU calculation is simply a proxy for energy consumed in the production process, because the physical and chemical content of the steel is not altered depending upon whether a coal-fired, natural gas, or electric smelter  is used in the production of the steel.

One concern in WTO terms is what it means to regulate production in the exporting country (see the excerpted Dolphin Friendly Tuna case disfavoring regulation of production beyond the border, although views have seemingly changed).  The other is the idea that while imposing tariffs for “excess” energy usage may preserve the competitiveness of developed country steel firms subject to strict environmental and carbon regulations, traditionally developing countries were permitted to prioritize economic growth over environmental quality.  You see the trade-off expressly in international environmental law instruments like the Kyoto Protocol rejected by the Bush Administration (in distributive justice terms, under which industrialized countries like the US were to be subject to quotas on carbon emissions, while countries like China and India still claiming developing country status were not).

So can something be permitted for trade law purposes, but rejected for environmental law purposes?  What do you think are the pros and cons of what would be referred to as the border tax equalization approach?