This article seeks to address one possible domestic step that State Parties to the Kyoto Protocol may take to reduce emissions, the additional measure which must be taken to address the international competitiveness of the effected industries, and the compatibility of these measures with WTO obligations. In particular, the article will address the use of a tax based on the amount of carbon or energy used during the production process. While such a tax may effectively reduce harmful emissions, it will also increase costs for domestic industry, thereby reducing international competitiveness. Therefore, governments may seek to implement a border tax adjustment in order to maintain the international competitiveness of domestic industry. Both measures, however, present potential conflicts with the obligations of WTO members to maintain free and non-discriminatory international trade. While the WTO case law regarding these issues provides only minimal guidance, such conflicts will inevitably be placed before the WTO’s Dispute Settlement Body.
McNamee, Daniel. "Climate Change, the Kyoto Protocol, and the World Trade Organization: Challenges and Conflicts." Sustainable Development Law & Policy, Winter 2006, 41-44, 65.