Bryan Mercurio & Justin Wong, “Low-Carbon-Emissions Standards and the WTO: Do California Measures Targeting Greenhouse Gas Emissions Discriminate against Canadian Oil?”

Working Abstract

This article analyzes the consistency of measures aimed at reducing carbon emissions which by design or impact restrict the importation and sale of oil sands with the commitments and obligations of the World Trade Organization (WTO). More specifically, this article evaluates the impact of California’s Low Carbon Fuel Standards (LCFS) on Canadian oil sands with a view to determining whether the measure is consistent with the non-discriminatory provisions contained in the WTO’s General Agreement on Trade and Tariffs (GATT) and/or whether it could be justified as an exception to the GATT. After careful review, our analysis demonstrates violations of Article I and III of the GATT and rejects the possibility of the US relying on one of the enumerated exceptions, namely Article XX(g) of the GATT as a measure relating to an exhaustible natural resource due to the arbitrary and unjustifiable nature of the measure. The issue is of the utmost importance to Canada, which not only is the leading oil exporter to the US but also holds the largest reserves of oil sands in the world. This is not to suggest that a WTO dispute is imminent or even being contemplated; the broader point is to demonstrate that regulations targeting GHG emissions (i.e. cap and trade or carbon taxes) must be carefully crafted to avoid inconsistencies with WTO commitments.

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