Addressing Leakage and Competitiveness in US Climate Policy Issues Concerning Border adjustment Measures

The document examines the legislative debate in the US regarding the adoption of a nationwide emissions trading scheme and the use of border adjustment measures to prevent carbon leakage and protect industrial competitiveness. It analyzes specific proposals like the Climate Security Act of 2008, arguing that while such measures are likely to be included in future legislation, they face significant legal risks under WTO rules, particularly the most-favored nation principle. The paper contrasts the US focus on 'competitiveness' and 'free-riding' with the EU's focus on 'carbon leakage' and recommends international coordination to avoid trade wars and ensure that such measures are based on environmental rather than protectionist rationales.

• Future US cap-and-trade legislation is likely to include provisions for border adjustment measures to address competitiveness and developing country participation, as these have been included in nearly all major recent bills in Congress.
• The Climate Security Act of 2008 utilizes an 'international reserve allowance program' requiring importers of covered goods from countries not taking 'comparable action' to purchase allowances from the EPA.
• Proposed US border adjustment measures may violate the most-favored nation principle of the GATT because they distinguish between countries based on whether they have taken 'comparable action'.
• While potentially violating core GATT disciplines, border adjustment measures might be saved by the environmental exceptions of Art. XX (b) (protecting human, animal or plant life or health) or Art. XX (g) (conservation of exhaustible natural resources).
• The US and EU differ in their framing of the issue: the US emphasizes safeguarding industrial competitiveness and preventing 'free riding' by countries like China and India, whereas the EU focuses primarily on 'carbon leakage'.
• The EU's approach to leakage is more cautious than the US's, focusing on identifying specific (sub-)sectors at risk of leakage and utilizing free allocation of allowances rather than designing immediate trade measures.
• The EU's revised ETS Directive establishes quantitative thresholds for leakage risk: sectors are exposed if production costs increase by 5% or more and non-EU trade intensity is above 10%, or if either production costs or trade intensity increase by 30% or more.
• There is a strong case for international coordination between the US, EU, and developing countries to ensure border adjustments are not used as 'disguised protectionism' and to avoid adverse impacts on climate and trade negotiations.

APA

van Asselt, H., Brewer, T., & Mehling, M. (2009). Addressing Leakage and Competitiveness in US Climate Policy Issues Concerning Border adjustment Measures. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-working-paper-vanasselt-brewer-mehling-040309.pdf

Chicago

van Asselt, Harro, Thomas Brewer, and Michael Mehling. Addressing Leakage and Competitiveness in US Climate Policy Issues Concerning Border adjustment Measures. Climate Strategies, 2009. https://climatestrategies.org/wp-content/uploads/2014/11/cs-working-paper-vanasselt-brewer-mehling-040309.pdf.

Wikipedia

{{cite report |last1=van Asselt |first1=Harro |last2=Brewer |first2=Thomas |last3=Mehling |first3=Michael |title=Addressing Leakage and Competitiveness in US Climate Policy Issues Concerning Border adjustment Measures |publisher=Climate Strategies |date=5 March 2009 |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-working-paper-vanasselt-brewer-mehling-040309.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{vanasselt2009addressing, author = {van Asselt, Harro and Brewer, Thomas and Mehling, Michael}, title = {{Addressing Leakage and Competitiveness in US Climate Policy Issues Concerning Border adjustment Measures}}, institution = {Climate Strategies}, year = {2009}, month = mar, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-working-paper-vanasselt-brewer-mehling-040309.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }