Implementing the Kyoto Protocol without the USA: the strategic role of energy tax adjustments at the border

This article explores options for countries that have ratified the 1997 Kyoto Protocol to the UN Framework Convention on Climate Change and that intend to implement ambitious climate protection strategies-the 'Kyoto coalition'-to deal with possible comparative disadvantages vis-a-vis third parties, in particular industrialized countries that do not adhere to the Kyoto Protocol. Specifically, the article focuses on the instrument of border adjustments for energy taxes. We outline the rationale for such adjustments and examine in detail whether certain border adjustments for energy taxes would be permissible under world trade law, in particular the General Agreement on Tariffs and Trade and the Agreement on Subsidies and Countervailing Measures. We conclude that despite remaining ambiguity in both the legal provisions and the pertinent case law, border tax adjustments are under certain circumstances compatible with world trade law. Yet, given persisting legal uncertainty, it seems likely that affected members of the World Trade Organization would challenge such energy tax adjustments at the border before the WTO dispute settlement mechanism.