7. The US Proposed Carbon Tariffs, WTO Scrutiny and China’s Responses

There is a growing consensus that climate change has the potential to seriously damage our natural environment and affect the global economy, thus representing the world’s most pressing long-term threat to future prosperity and security. With greenhouse gas emissions embodied in virtually all products produced and traded in every conceivable economic sector, effectively addressing climate change will require a fundamental transformation of our economy and the ways that energy is produced and used. This will certainly have a bearing on world trade as it will affect the cost of production of traded products and therefore their competitive positions in the world market. This climate-trade nexus has become the focus of an academic debate (e.g., Bhagwati and Mavroidis 2007; Charnovitz 2003; Ismer and Neuhoff 2007; Swedish National Board of Trade 2004; The World Bank 2007; Zhang 1998, 2004, 2007a; Zhang and Assunção 2004), and gains increasing attention as governments are taking great efforts to implement the Kyoto Protocol and forge a post-2012 climate change regime to succeed it.