Thread by @Tim_L_Meyer

A few thoughts in response to @DavidKleimann's take on Senator @ChrisCoons & @RepScottPeters' carbon border bill. Thread-

https://twitter.com/DavidKleimann/status/1422626252742184960

His main beef seems to be that the bill will mean no explicit carbon price in the US. But as @toddtucker and I argue in @trade_review, achieving our climate goals on the necessary timetable means accepting a diversity of approaches to decarbonization. cambridge.org/core/journals/…

Indeed, the Paris Agreement nations agreed to accept a diversity of domestic approaches to decarbonization. The EU CBAM abandons this promise by not giving importers credit for the implicit price of carbon resulting from regulations, the approach on which the US has relied.

Nor, as @dcullenward & David Victor have argued, does the evidence show that explicit carbon pricing is a better approach than implicit carbon pricing, once one takes into account politics that a) may make explicit carbon pricing strategies political no-goes (e.g., US, Australia)

& b) result in weakening the implmentation in countries that do adopt them (eg free allowances in the EU). Given the history & politics of carbon pricing in the US (e.g. Waxman-Markey) the Coons/Peters bill will not be the reason the US does not adopt explicit carbon pricing.

Worse, trying to force the US to adopt explicit carbon pricing will likely create exactly the negative climate implications in the US that @DavidKleimann fears.

Since implicit pricing + industrial policy is a more politically feasible path to decarbonization in the US, but implicit pricing is not credited under the EU’s CBAM, raising climate standards in the US hurts US exporters under the EU CBAM & thus disincents higher standards.

2. That brings us to Trans-Atlantic cooperation. As @toddtucker & I argued, a carbon customs union among like-minded countries is the best path forward. We imagine an ex ante agreement that minimizes trade tensions & also creates a unified front among high-ambition countries.

The US government would need authority for such an agreement. The best fit w/i existing authority is s. 232 of the Trade Expansion Act. But the Coons/Peters bill also directs USTR & State to negotiate to “ensur[e] fairness in the application of emissions-based tariffs.”

3. Kleimann thus greatly exaggerates the potential damage to Trans-Atlantic cooperation . This is how diplomacy works. The US doesn’t like that the EU isn't giving credit for implicit carbon pricing. So the Coons/Peters bill gives the EU a reason to change that aspect of its CBAM

That doesn’t “irreparable poison” the relationship. It reflects normal tit-for-tat economic diplomacy. Do these things take time to work out? Sure. Should the US just give up on trying to get the EU to recognize implicit carbon pricing ? No.

4. The Coons/Peters bill is just that, a bill. It would likely change before being enacted. It would then be subject to rule making before implementation. These processes provide a chance to develop the bill to accommodate concerns.

Indeed, the bill itself directs the admin to adopt a methodology “consistent with international treaties and agreements, including free trade agreements.”

The Coons/Peters bill also requires the administration to create a procedure by which an importer can petition for a lower tariff based on actual emissions. In other words, US-derived values are defaults, similar to how the EU CBAM creates defaults.

5. On the WTO legality of the Coons/Peters bill, I agree a bit more w/ Kleimann. As @toddtucker & I argue, virtually any politically feasible CBM in either the US or EU is going to violate the GATT's primary rules.

Kleimann & I part ways on the exceptions analysis, tho. First, although he doesn’t say this outright, the tone of his post suggests he thinks the EU’s proposal would survive review under the chapeau as currently written. It would not.

At the moment, it is clearly coercive in forcing countries to adopt explicit carbon pricing in order to get credit, a no-no under the chapeau of art. XX. By ignoring implicit carbon pricing, it also double charges importers, just as Kleimann worries the Coons/Peters bill would do

Second, the Coons/Peters bill can, in my view, be provisionally justified under XX(g). Charging imports from countries with lesser standards than the US is “related” to conservation & is in conjunction w/ (in fact explicitly tied to the level of) domestic restrictions.

The main concerns w/ the Coons/Peters bill, like the EU CBAM, relate to whether the discrimination the measure creates can be justified under the chapeau. As so often under the chapeau, the problem is exceptions in the measure: equally effective domestic measures & reciprocity.

The binary nature of the determination (either you have standards as effective as US standards or you don’t) could be, but need not be, problematic. As noted above, the Coons/Peters bill has a petition process through which individual importers can contest their charge.

So the binary determination really only works to establish defaults. The AB in Shrimp-Turtle ultimately approved an equally effective approach with flexibility to contest and demonstrate equal effectiveness.

A lot must happen before implementation, but this doesn’t seem that different. The reciprocity condition is harder under current approaches to the chapeau b/c it is discrimination that is in a technical sense unrelated to the climate objective.

This ignores the political realities of enacting measures to tackle tough global problems. As I have argued, art. XX's nondiscrimination rule should tolerate conditions like the reciprocity condition to long as discrimination is not the predominant motive: papers.ssrn.com/sol3/papers.cf…

Having said that, the problems created by the reciprocity condition under current approaches to art. XX are why @toddntucker & I have called for an ex ante agreement, which avoids the needs for an explicit reciprocity condition.

It is also a reason to prefer diplomacy over litigation. Implementing CBMs is going to be messy, but is politically necessary to support high-ambition domestic decarbonization measures.

Countries should give each other the space to implement nationally-appropriate solutions, as the Paris Agreement contemplates, & work out the rough edges via negotiations.