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Climate Change, Competitiveness and Trade

Climate Change, Competitiveness and Trade

Aaron Cosbey and Richard Tarasofsky

A Chatham House Report

June 2007

This report considers the implications of the Kyoto Protocol on competitiveness and addresses the WTO-compatibility of measures to offset competitive losses.

 From the outset the Kyoto Protocol and the United Nations Framework Convention on Climate Change have had to contend with perceived tension between effective action to slow climate change and maintenance of competitiveness. This report explores the nature of the concerns over competitiveness, trying to dissect them in a meaningful way and assess the need for concern. It employs a definition of competitiveness that applies as between firms, as opposed to any general notion of the competitiveness of nations.

Two types of competitiveness concerns are identified and addressed. The first – the ‘non-Party problem’ – is that implementation may create an uneven playing field, with firms and sectors from non-Parties enjoying an unfair advantage because they are not subject to carbon constraints. The second – the ‘implementation problem’ – is that Parties may create unfair competitive advantages for domestic industry by the manner in which they implement their Kyoto commitments.

 

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