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Policy Options to Prevent Climate Change

by Gary Clyde Hufbauer, Peterson Institute for International Economics

Testimony before the US House of Representatives Committee on Ways and Means
September 18, 2008

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Serious US controls on greenhouse gas (GHG) emissions will increase costs for US producers, especially GHG-intensive industries such as steel, paper, chemicals, cement, and glass. The prospect of increased costs has raised concerns about the competitive position of US producers and the "leakage" of production and jobs to foreign firms. In the absence of parallel international commitments, US measures might shift manufacturing activity to countries that do not limit GHG emissions, thus causing emissions to simply migrate abroad.

As Congress takes up domestic climate legislation, policymakers are looking for ways to avoid putting US GHG-intensive producers at a competitive disadvantage vis-à-vis countries without similar climate policy. They are increasingly considering trade-related rules at the border on foreign producers that do not have comparable climate policies, which could prompt other major countries to do the same. Hufbauer warns that a round of global trade restrictions, enacted in the name of climate change, will severely damage the US and world economies. He recommends a "pause" before any new US border rules take effect (like the pause contemplated in the Lieberman-Warner legislation); US-China engagement at the upcoming negotiations for a post-Kyoto regime at Copenhagen; and a serious effort to draft a new WTO Code of Good Practice on GHG rules.


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