To date, the Unites States (U.S.) has not committed to a binding federal or international carbon dioxide (“CO2”) reduction agreement – an agreement that would signal a willingness and ability to meet CO2 emission reduction targets. Indeed, if the United States were to adopt carbon pricing legislation, several key questions must first be addressed. This includes the question of how best the U.S. could harmonize or link with other systems when: (1) it is concerned with protecting its trade competitiveness; (2) there is a global fragmented carbon market (carbon tax, cap & trade, and non-‐ regulation); and (3) the U.S. must remain compliant with WTO Law?
In light of these complex issues, this brief investigates how the U.S. can best develop a sound greenhouse gas emission reduction policy that effectively reduces carbon dioxide emissions, preserves domestic competition, and is WTO-compliant. In particular, this memorandum proposes the utilization of U.S. border measures. The objective being to have imports bare the same social cost of carbon as domestic firms. This can be done by leveling costs upwards for certain imports and downwards for certain exports as a tool for compensating domestic producers in the applicable sectors. As will be described, this can be linked with other regimes in what is likely a WTO compliant fashion.