How the International Reserve Allowance Program Operates within

How the International Reserve Allowance
Program Operates within
Proposed US Climate Change Legislation
Based on Title XIII, Subtitle A of Lieberman-Warner-Boxer
“Managers’ Amendment,” introduced June 4, 2008
Andrew W. Shoyer
Sidley Austin LLP
Washington DC
[email protected]
October 2008
What are the objectives?
The goal is to establish an environmental
framework that protects the environment and fairly
treats U.S. workers.
The framework seeks to –
find a global solution to the global climate change
problem, and by solving this problem, also:
helps prevent the shifting of U.S. jobs to foreign
countries that would have lower manufacturing
costs merely because they refuse to do their part to
limit greenhouse gas (GHG) emissions.
Which countries are covered?
The allowance requirement only applies to foreign
countries that are –
large-emitters of GHG emissions, and
not taking “comparable action” to address their
Foreign countries are excluded if they –
Have taken “comparable action” to limit their GHG
Are among the poorest developing countries, or
Have de minimis levels of GHG emissions.
How is “comparability” determined?
First, action is deemed “comparable” if
percentage change in GHG emissions in the foreign
country is equal to or higher than
percentage change in the U.S. in the relevant period
If the foreign country fails the first test, then
Commission still may deem action “comparable” taking
into account the extent of -Deployment and use of state-of-the-art
technologies, and
Implementation of regulatory programs
Implementation Timeline of
International Reserve Allowance Program
Apply cap to US producers and reduce emissions
Report verified emission reduction in first year
Date of
Commission established
President notifies foreign
of projected US caps.
Above assumes 3 years to
develop domestic regulations for
entire cap and trade program
Requirement Applies
Measure and verify emission reduction in first year
Commission determines comparable action
Negotiations ongoing with foreign
countries to achieve agreement on
comparable action
Allowance requirement applies to
US importers of covered goods;
Commission publishes
foreign country lists
(End Year 8) Commission determination
to increase stringency, other action
* These international efforts ensure compliance with the WTO requirement of
good-faith negotiations before imposing trade measures
When does allowance requirement apply?
To fully comply with WTO, the U.S. first must make
good faith efforts to negotiate with foreign countries
affected by the program to limit their GHG emissions.
WTO requires that, if US negotiates with some countries,
must negotiate with all countries affected by program.
The allowance requirement is a measure of last resort
that applies after the promulgation of regulations and
the start of the U.S. cap-and-trade program.
This ensures that the "comparability" of foreign action on
GHG emissions can be measured against domestic action,
thus complying with WTO and rebutting any allegation that
the requirement is “protectionist.”
When does allowance requirement apply?
Not protectionist – The requirement would not actually be
applied against any country until 2 years after the U.S. cap
begins for the results of the cap to be measured and
demonstrated. (By contrast, a protectionist trade measure
would take effect almost immediately.)
Provides negotiating leverage -- The proposal provides U.S.
climate negotiators with a “stick” -- with leverage -- to use in
negotiations with other major emitting nations. The global
political pressure for action on climate change will become
even stronger during the next decade. That change in global
opinion on this issue, and the need for all major emitting
nations to reduce their own domestic emissions -- when
coupled with these provisions -- will likely mean that the
requirement will never actually have to be implemented
against any major emitters.
How does the allowance
requirement work?
U.S. importers must hold allowances (see next slide) to
cover emissions from imported goods.
Failure to submit allowances bars entry of imported goods
into the U.S.
The allowance requirement –
applies after the start of the U.S. cap-and-trade program,
strives to mirror allowance requirement that the U.S.
program imposes on producers of domestic goods, and
the comparability and allowance determination, as with
other key decisions, is made by an independent and
bipartisan commission.
How do importers comply?
Importers may comply with the allowance
requirement by –
obtaining emission allowances issued pursuant to other
foreign GHG regulatory programs
obtaining certified emissions credits issued pursuant to
the U.S. program or other foreign GHG regulatory
purchasing “international reserve allowances” from a
separate pool that is reserved only for this purpose (see
next slide)
What are the key features of
international reserve allowances?
The allocation of international reserve allowances will
not reduce the number of allowances allocated for
domestic compliance.
The international reserve allowances –
cannot be used for domestic compliance, and
can only be used for meeting the allowance requirement
applicable to imported covered goods.
The price of the international reserve allowances would
be pegged at the U.S. market price for domestic
International reserve allowances may be traded and
banked for future use.
Which goods are covered?
The allowance requirement applies initially to “greenhouse
gas intensive” goods from countries that are found to have
not taken comparable action as the U.S.
Covered goods include –
primary products (such as iron and steel, aluminum, cement, bulk glass,
and paper) and
manufactured goods for consumption that generate a substantial quantity
of direct and indirect GHG emissions
Limiting the primary scope of the program addresses
concerns that the international allowance provision will
interfere with international trade with respect to the vast
amount of imported goods that do not generate significant
GHG emissions during their manufacture.
How is the allowance requirement set?
The allowance requirement is –
set for each category of covered goods from each
covered foreign country,
applied on a per unit basis to each good,
adjusted each year to reflect production changes in
the foreign country,
adjusted to ensure consistency with WTO
What adjustments do WTO rules
To ensure WTO compliance, adjustments are made
to each category of covered goods.
The WTO adjustments are intended to –
avoid unjustifiable discrimination between countries
where the same conditions prevail.
Example: Take into account the extent to which state-of-the-art
technologies and regulatory programs are deployed.
maintain rough comparability in burden on imported and
domestic goods.
Example: Lower international allowance requirement to reflect
“free” allowances given to domestic producers. (This ensures
that imported goods are “not treated less favorably” than
domestic goods.)
Can the allowance requirement
be adjusted further?
The Commission can increase the stringency of the
international allowance requirement or take other
appropriate action to address GHG impacts of imports.
Either action is authorized if –
the Commission determines the current requirement is
insufficient to address GHG impacts, and
the adjusted requirement complies with WTO laws.
The Administrator also may make adjustments to ensure
other aspects of implementation of the program are WTO
September 26, 2008
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