Climate Change, Competitiveness and Trade

The report analyzes two primary competitiveness concerns: the 'non-Party problem,' where firms in non-participating nations gain an advantage, and the 'implementation problem,' where domestic policy choices create uneven playing fields. It concludes that while some sectors—particularly energy-intensive ones like aluminium—are vulnerable, overall impacts are often moderate. The report also details the complex interface between the Kyoto Protocol and the WTO, evaluating the legality of border tax adjustments, energy standards, and subsidies, suggesting that most conflicts arise from the design of specific measures rather than inherent treaty contradictions.

• The 'non-Party problem' refers to the risk that firms in countries not party to the Kyoto Protocol enjoy an unfair advantage because they are not subject to carbon constraints, potentially leading to 'carbon leakage' where production shifts to unregulated jurisdictions.
• The 'implementation problem' occurs when Parties to the Kyoto Protocol create unfair competitive advantages for domestic industry through the specific manner in which they implement their commitments, such as the allocation of permits in the EU Emissions Trading Scheme.
• Research on the 'pollution haven' hypothesis suggests that while environmental regulations can impact competitiveness, the effects are generally moderate for most firms, though they can be significant for specific sectors based on energy intensity and the ability to pass costs to consumers.
• The aluminium sector is identified as particularly vulnerable to competitiveness losses due to its high energy intensity, the global nature of its market, and limited ability to pass cost increases to customers.
• The report argues that the 'implementation problem' is a lesser cause for concern in the medium term than the 'non-Party problem,' as unevenness among EU countries is likely to remain relatively low and align with existing comparative advantages.
• Border tax adjustments (BTAs) to offset carbon taxes are legally ambiguous under WTO rules; while GATT allows BTAs for direct taxes, it is unclear if they are permissible for indirect 'taxes occultes' on energy inputs consumed during production.
• Energy standards used to meet Kyoto objectives are generally compatible with the WTO's Agreement on Technical Barriers to Trade (TBT), provided they are transparent and based on international standards where possible.
• The use of subsidies for energy-efficient products is generally permitted under the WTO Subsidies Agreement, unless the subsidy is contingent on export performance or requires the use of domestic goods over foreign ones.
• The report suggests that the interface between the Kyoto Protocol and the WTO is primarily a matter of measure design rather than an inherent conflict between the two regimes.

APA

Cosbey, A., & Tarasofsky, R. (2007). Climate Change, Competitiveness and Trade. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/climate_trade_competitive.pdf

Chicago

Cosbey, Aaron, and Richard Tarasofsky. Climate Change, Competitiveness and Trade. International Institute for Sustainable Development, 2007. https://www.iisd.org/system/files/publications/climate_trade_competitive.pdf.

Wikipedia

{{cite report |last1=Cosbey |first1=Aaron |last2=Tarasofsky |first2=Richard |title=Climate Change, Competitiveness and Trade |publisher=International Institute for Sustainable Development |date=June 2007 |url=https://www.iisd.org/system/files/publications/climate_trade_competitive.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cosbey2007climate, author = {Cosbey, Aaron and Tarasofsky, Richard}, title = {{Climate Change, Competitiveness and Trade}}, institution = {International Institute for Sustainable Development}, year = {2007}, month = jun, url = {https://www.iisd.org/system/files/publications/climate_trade_competitive.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }