Skip to main content Accessibility help
  • Print publication year: 2011
  • Online publication date: April 2011

10 - Addressing competitiveness in US climate policy



Mandatory policies to reduce US greenhouse gas (GHG) emissions without full global participation – principally cap-and-trade systems, occasionally carbon taxes, and sometimes standards – are being seriously debated in the US Congress. However, even efficient market-based policies that effectively attach a price to GHG emissions will likely increase production costs for some domestic producers and give rise to competitiveness concerns where those producers compete against foreign suppliers operating in countries where emissions do not carry similar costs. These concerns are likely to be most acute in energy-intensive, trade-exposed manufacturing industries. While the impacts can be mitigated to some extent by the use of offsets or other flexibility mechanisms, it would be virtually impossible to eliminate the disproportionate burdens placed on certain sectors without undermining both the effectiveness and the cost-effectiveness of the policy. As Olson has eloquently argued, the more narrowly focused the adverse impacts of a policy, the more politically difficult it is to sustain.

One of the key questions being asked is this: Why should US firms be disadvantaged relative to overseas competitors to address a global problem? The difficulty, moreover, is not just political: if, in response to a mandatory policy, US production simply shifts abroad to unregulated foreign firms, the resulting emissions “leakage” could vitiate some of the environmental benefits expected from domestic action. As is widely recognized, limiting emissions from the USA and other developed countries will not prevent dangerous interference with the climate system unless key developing countries also control their emissions.

Related content

Powered by UNSILO
Mancur, Olson, The Logic of Collective Action (Cambridge, MA: Harvard University Press, 1965), p. 47.
Carolyn, Fischer and Morgenstern, Richard D., “Designing Provisions to Maintain Domestic Competitiveness and Mitigate Emissions Leakage,” Policy Brief 09–06, Energy Security Initiative (Washington, DC: Brookings Institution, 2009), pp. 5–6.
Mun, Ho, Morgenstern, Richard D., and Jhih-Shyang, Shih, “Impact of Carbon Price Policies on US industry,” Discussion Paper 08–37 (Washington, DC: Resources for the Future, 2008), pp. 25–26.
McKinsey, & ,Company and Ecofys, EU ETS Review: Report on International Competitiveness. European Commission, Directorate General for Environment (2006), p. 4.
Reinaud, J., Industrial Competitiveness Under the European Union Emissions Trading Scheme (Paris: International Energy Agency 2005), pp. 55–59.
Freeman, Jody and Kolstad, Charles D. (eds.), Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience (New York: Oxford University Press, 2007), pp. 4–10.
Dallas, Burtrawet al., “Economics of Pollution Trading for SO2 and NOx,” RFF Discussion Paper 05–05 (2005), pp. 28–35.