Climate change regulation in Australia: Addressing leakage and international competitiveness consistently with the law of the WTO

摘要

This article considers how a compensatory mechanism within a broader climate change regulation is limited by Australia's obligations under the World Trade Organization Agreements, and how World Trade Organization law might shape the design of a climate change regulation in Australia. The award of compensation to emissions-intensive trade-exposed industry has been justified on both economic grounds (protection against the impact of international competition) and environmental grounds (reducing the risk of carbon leakage). However, following recent economic studies on carbon leakage in Australia, this article concludes that a compensatory mechanism is unlikely to be justifiable under the environmental exceptions in Art XX of the General Agreement on Tariffs and Trade. Given this limitation, the article considers the scope available to enact a compensatory mechanism that does not need to rely upon any environmental justification. It concludes that a compensatory mechanism is most effective when built within a border tax adjustment. Importantly, this limitation on compensatory mechanisms has broader implications for the design of a climate change scheme. Should the Australian government wish to include a compensatory mechanism in a climate change regulation, it is best administered through a domestic carbon tax.