An International Climate Regime Without an International Climate Treaty
By Collmann Griffin, Staff Contributor
An effective climate change regime must be worldwide. Since 1990, increased carbon output in most countries has more than offset the decreased output achieved through complex legislation in others. Furthermore, while all countries would benefit from a worldwide decrease in greenhouse gases, the most rational option for each individual country may be to defect and enjoy the benefits of both its own increased greenhouse gas output and the world’s decreased output. Thus, if each country pursues its rational interest, no country will decrease its own greenhouse gas, and every country loses. The solution seems to require a binding worldwide regime preventing defection. However, the most obvious law for achieving this solution – an effective multilateral climate change treaty – does not seem to be politically possible.
Nevertheless, transnational domestic legislation by a large, clean economy like the European Union (E.U.) could provide a worldwide regime to reduce greenhouse gas – a regime which could be more enforceable than any climate change treaty. How could this be? A model is California’s Low Carbon Fuel Standard (LCFS), a regulation the Ninth Circuit deemed consistent with the dormant Commerce Clause of the U.S. Constitution in 2013. Analogous national legislation by a large, clean economy such as the E.U. could be similarly effective at limiting climate change worldwide, and also legal under the 1994 General Agreement on Tariffs and Trade (GATT), the cornerstone of the World Trade Organization (WTO) system.
The LCFS allows California to limit carbon at every step of a fuel’s lifecycle – including production, refining, and transportation – regardless of whether these steps take place inside or outside California. The limit works in a manner similar to a cap-and-trade regime: A California state agency classifies fuel “default pathways” according to fuel type, production method, and – crucially – carbon costs associated with transportation from a particular production location. Each default pathway is assigned a credit or a deficit whose size depends on carbon intensity; credits may be purchased or used to offset deficits, but at the end of each year a regulated fuel blender’s total credits and deficits may not exceed the LCFS’s annual limit.
“Thus, the LCFS requires fuel blenders to make decisions based a fuel’s carbon lifecycle, including environmentally relevant decisions as to where the fuel should be produced.”
Thus, the LCFS requires fuel blenders to make decisions based a fuel’s carbon lifecycle, including environmentally relevant decisions as to where the fuel should be produced. For example, the law rewards a fuel blender who purchases Brazilian ethanol produced from sugarcane using hydroelectric power and transported to California by ocean tanker over American Midwest ethanol produced from corn using coal and transported to California by truck, because the Brazilian ethanol is cleaner at each stage of its lifecycle than its Midwest rival. In addition to the “default pathways,” the LCFS also allows fuel blenders to register “individualized pathways” if the fuel blender can demonstrate that their fuel’s lifecycles are cleaner than the applicable default pathway.
While discrimination as to a fuel’s production location is environmentally relevant, it also raises issues under the dormant Commerce Clause of the U.S. Constitution. The dormant Commerce Clause forbids differential treatment of in- and out-of-state economic interests, unless this treatment serves a legitimate local purpose that could not be served as well by available nondiscriminatory means. California fuels may enjoy lower carbon intensity than similar fuels produced elsewhere, because California fuels often require less carbon-intensive transportation, and California receives most of its power from renewable sources and natural gas, which are cleaner than the oil and coal prevalent in other parts of the country. Therefore, in effect, the LCFS may favor California fuels over fuels from other states. However, in Rocky Mountain Farmers Union v. Corey, the Ninth Circuit nevertheless held the LCFS constitutional, reasoning that reducing greenhouse gas emissions is a legitimate local purpose, which must take into account the carbon intensity of a location’s fuel production and transportation.
“A LCFS-like law at the national level of a large clean economy like the European Union (E.U.) could similarly effective on a worldwide scale.”
A LCFS-like law at the national level of a large clean economy like the European Union (E.U.) could similarly effective on a worldwide scale. For example, perhaps the E.U. could require that goods produced in or imported into the E.U. meet a carbon intensity threshold, and establish default pathways to measure this intensity based on the production process and energy used in a particular location, as well as the carbon intensity of transportation. Such a national law could have a significant impact on the production of greenhouse gases in any country that hopes to export goods into the E.U.’s $18 trillion economy, including the United States, China, Russia, Japan, and India. The measure may even have more teeth than any multilateral international treaty, because the E.U. could enforce it simply by refusing goods’ entry into Union, instead of through a cumbersome treaty dispute resolution process.
Moreover, a LCFS-like E.U. law has political strengths both domestically and internationally. Domestically, the law would enjoy support from both environmentalists, and – crucially – domestic manufacturers who must comply with strict E.U. environmental law and may want to level the playing field with their foreign competitors. As with California, pathways for European-produced goods would more easily meet a carbon intensity threshold, given the lack of transportation required and Europe’s greater energy efficiency. Internationally, while trading partners may resent European environmental law, the Europeans could make the case on the international stage that climate change requires such measures. Furthermore, other countries may find it difficult to retaliate against the E.U. in kind, because to do so would require that they implement stricter environmental law than the E.U.
Finally, just as the LCFS is legal under the dormant Commerce Clause, a similar national standard would likely be legal under the 1994 General Agreement on Tariffs and Trade (GATT). Like the dormant Commerce Clause, Article III(4) of the GATT forbids less favorable treatment of foreign goods, which could be implicated by a LCFS-like standard that favors Europe’s energy efficiency and disfavors the energy costs of transportation. Furthermore, Article I(1) of the GATT requires that the E.U. accord the same treatment to goods from other WTO members, which could be implicated if one trading partner enjoys an advantage over another due to greater energy efficiency and lower transportation energy costs.
However, Article XX(g) of the GATT allows an exception from any other provision of the GATT “relating to the conservation of natural resources,” so long as such a requirement is “not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail,” is “not a disguised restriction on international trade,” and is “made effective in conjunction with restrictions on domestic production and consumption.”
A LCFS-like national standard would likely prevail on all of the elements of GATT Article XX(g). Such a law would be related to the conservation natural resources, namely fossil fuels. Furthermore, such a law need not be arbitrary or unjustifiable discrimination between countries where the same conditions prevail, and would be made effective in conjunction with restrictions on domestic production and consumption. Like the California law, an LCFS-like national law could build pathways based on factors that apply to both domestic and foreign producers, such as the use of natural gas over coal, and could also include measures that are clearly justifiable from an environmental perspective, such as the carbon intensity of transportation. Finally, such a national law would not be a disguised restriction on international trade, given the importance of global warming and multiple failures to affect change by other means.