	Introduction

As the debate on reducing greenhouse gases (GHGs) has progressed, increasing concern has been raised about how a U.S. reduction program would interact with programs in other countries. In a global context where currently some countries have legally binding policies to reduce greenhouse gas emission and other countries do not—i.e., differentiated global carbon policies—the potential exists that countries imposing carbon control policies will find themselves at a competitive disadvantage vis-à-vis countries without comparable policies. The risks accompanying establishment of carbon control policies, in the absence of similar policies among competing nations, have been central to debates on whether the United States should enact greenhouse gas legislation. Specifically, concerns have been raised that if the United States adopts a carbon control policy, industries that must control their emissions or that find their feedstock or energy bills rising because of costs passed-through by suppliers may be less competitive and may lose global market share (and jobs) to competitors in countries lacking comparable carbon policies. In addition, this potential shift in production could result in some of the U.S. carbon reductions being diluted by increased production in more carbon intensive countries (commonly known as "carbon leakage"). Options to Provide Assistance

There are three basic approaches to assisting greenhouse-gas-intensive, trade-exposed industries: (1) assist domestic industry; (2) penalize foreign competitors; and (3) develop alternative sectoral approaches. Support for domestic industries, the approach most commonly included in legislative proposals, is not focused on this objective; it is focused on preserving the industry's current competitive position and jobs and may, depending on the details, help transition that industry to the future. Trade measures for foreign competitors, another approach commonly included in legislative proposals, may provide a stick for international negotiation, but the primary focus is on protecting greenhouse gas-intensive, trade-exposed industries from "unfair" competition while the country awaits an international agreement. Finally, the sectoral approach represents a range of options focused on integrating developing countries' industrial bases into a mutually acceptable international framework that provides a level playing field for all participants. Whether any of these approaches would have appreciable effects on carbon leakage is unclear. The design of an assistance program—the goals, eligible participants, implementation, and enforcement—would be difficult to define in a manner that satisfies all parties. There is every incentive for any industry facing a cost increase from carbon policies to claim that its competitive position could be diminished, thereby justifying special consideration by the government. The government would be in the difficult position of picking winners and losers, sometimes without access to important but proprietary data.
As the debate on reducing greenhouse gases (GHGs) has progressed, increasing concern has been raised about how a U.S. reduction program would interact with those of other countries. In a global context where currently some countries have legally binding policies to reduce greenhouse gas emission and other countries do not—i.e., differentiated global carbon policies—the potential exists that countries imposing carbon control policies will find themselves at a competitive disadvantage vis-à-vis countries without comparable policies.
The risks accompanying establishment of carbon control policies, in the absence of similar policies among competing nations, have been central to debates on whether the United States should enact greenhouse gas legislation. Specifically, concerns have been raised that if the United States adopts a carbon control policy, industries that must control their emissions or that find their feedstock or energy bills rising because of costs passed-through by suppliers may be less competitive and may lose global market share (and jobs) to competitors in countries lacking comparable carbon policies. In addition, this potential shift in production could result in some of the U.S. carbon reductions being counteracted by increased production in less regulated countries (commonly known as "carbon leakage").
There are three basic approaches, which are not mutually exclusive, to assist greenhouse gas-intensive, trade-exposed industries: (1) directly supporting domestic industries; (2) penalizing foreign competitors; and (3) developing alternative sectoral approaches. Importantly, these are presumably transitional actions, pending some international agreement that "levels the playing field."
Each approach has its own focus. Support for domestic industries, embodied in most legislative proposals, is focused on preserving the industry's current competitive position and jobs and may, depending on the details, help transition that industry to the future. It does not directly promote an international agreement. Trade measures levied against foreign competitors, another approach being proposed, may provide a stick for international negotiation, but the primary focus is on protecting greenhouse gas-intensive, trade-exposed industries from "unfair" competition—producers in countries not imposing comparable carbon control policies. Finally, the sectoral approach represents a range of options focused on integrating developing countries' industrial base into a mutually acceptable international framework that provides a level playing field for all participants. Whether any of these approaches would have any appreciable effect on carbon leakage is unclear.
The design of an assistance program—the goals, eligible participants, implementation and enforcement—would be difficult to define in a manner that satisfies all parties. There is every incentive for any industry facing a cost increase from carbon policies to claim that its competitive position could be diminished, thereby justifying special consideration by the government. The government would be in the difficult position of picking winners and losers, sometimes without access to important, but proprietary, data.