Ahead of the United States in adopting a national scheme to cap and reduce greenhouse gas (GHG) emissions, Canada recently announced the final regulatory framework for its Turning the Corner plan to reduce GHG emissions by 20% from 2006 levels by 2020. Promulgated pursuant to the Canadian Environmental Protection Act of 1999, draft regulations to implement the Turning the Corner plan are expected in the Fall of 2008. In announcing the plan, Canada noted that its performance in reducing emissions “has lagged behind most OECD countries for well over a decade.”

While Canada’s Turning the Corner plan is analogous in many respects to the leading U.S. legislative proposal to cap and reduce GHG emissions – S.2191, the America’s Climate Security Act of 2008 (ACSA), introduced by Senators Lieberman and Warner – one major difference is the lack in Canada’s plan of a mechanism to address the competitive impact to Canadian manufacturing firms of imports produced under less stringent GHG emissions standards. According to the Turning the Corner plan, the final regulations will cover 16 industrial sectors, including refineries, chemical and fertilizer plants, and the cement, steel, and pulp and paper industries. Many of the products produced by these industries compete in Canada’s domestic market (and abroad) with products produced in China, India, and other countries that currently are not planning similar curbs on domestic GHG emissions.

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The ongoing World Trade Organization (WTO) Doha Round process includes negotiations toward an agreement that would reduce or eliminate tariff and non-tariff barriers to international trade in “environmental” good and services. While the mandate for these negotiations is the 2001 WTO Doha Declaration, the United States now views these negotiations as “complementing and supporting the objectives of and the process under” the UN Framework Convention on Climate Change process. The fundamental goal of a WTO agreement on trade in environmental goods and services is to harness trade liberalization to encourage the global distribution and deployment of environmentally friendly technologies that, among other things, help mitigate climate change.

As in other areas of the ongoing WTO Doha Round negotiations, substantial differences have emerged between developed and developing countries – and in particular, between the United States and the European Communities (EC), on the one hand, and Brazil, on the other.

Currently, one of the principal areas of contention is whether to include biofuels in the definition of “environmental” goods. Brazil argues that the inclusion of biofuels is critical in order to increase exports of environmental goods from developing countries. The United States and the EC have rejected Brazil’s proposal, contending that trade liberalization in biofuels should be negotiated as part of the separate WTO market access negotiations for agricultural goods. Further, in a recent joint proposal, the United States and the EC argue that the environmental goods and services negotiations should be divided into two phases – the first and more urgent phase addressing trade in goods and services directly linked to addressing climate change, and the second phase covering the remaining substantial body of environmental goods and services.

Negotiations are currently scheduled to resume in February 2008. It is widely accepted that Brazil and other developing countries will object strenuously to the recent joint US/EC proposal because it excludes biofuels, and it seems unlikely that it will be easy to bridge this divergence of views. Unlike other areas of the WTO Doha Round negotiations, it does not seem that these negotiations will soon advance to the stage of discussions based on a draft text for an agreement.

For further information about this topic, please contact Akin Gump.