Open Trade with the U.S. without Compromising Canada’s Ability to Comply with its Kyoto Target

There are no other two countries in the world that trade as much between themselves as do Canada and the U.S.. It should thus come as no surprise that the U.S. deviation from international obligations makes Canadian industries’ competitiveness (trade) concerns become even more rigorous. Against this background, this paper aims to address competitiveness concerns brought about by the different level playing field where Canadian industries face mandatory emissions constraints but U.S. industries’ emissions are uncapped. To that end, the paper has addressed: 1) ways to deal with increased emissions in Canada as a result of increasing energy exports to the U.S.; 2) treatment of Canadian subsidiaries of U.S. multinationals in initially allocating Canada’s assigned amount; 3) transferring Kyoto permits to non-Annex B Parties and transferring credits generated by non-Kyoto Parties to Kyoto Parties; 4) whether the U.S. bears any economic costs even when it faces no mandatory emissions targets during the first commitment period and why does Canada like to bear additional costs, if any, relative to the U.S. and the EU.? and 5) what other measures might Canada take to further mitigate its trade concerns, in addition to taking advantage of the opportunities offered by the Kyoto flexibility mechanisms? If Canada and other like-minded countries invoke trade measures (to meet their Kyoto targets) against another WTO member but non-Kyoto Party like the U.S, would these measures be upheld if challenged by the U.S. under WTO? In so doing, attention is paid to the trade effects of the proposed measures to ensure their close consistency with the WTO rules, thus maximizing the WTO’s contributions to sustainable development. It should be pointed out that although this study focuses on the U.S. and Canada, the results are of high policy relevance to Japan and the EU as well. The latter also have to address the similar issues facing Canada, although to a lesser extent.