This Model Provision provides a regulatory framework to use decarbonization policy to promote local employment without resorting to protectionist measures that run afoul of international trade rules. A key goal of the Model Provision is to help secure public support and private investment in a “just transition” to a zero-carbon economy through evidence-based policies that facilitate a virtuous circle of cost reduction, economic growth, and the creation of local, decent jobs.
Protectionist measures known as “Local Content Rules” (LCRs) have been prohibited under World Trade Organization Rules. There are exceptions for government procurement efforts (see General Agreement on Tariffs and Trade (GATT) Article III:8), and a number of LCRs persist internationally, though the U.S. is among countries who have seen their LCRs for renewable energy ruled against in disputes at the WTO.
Local jurisdictions may seek alternatives to LCRs, however, which promote sustainable local employment in new, green industries without breaching international trade and investment rules. Alternatives to prohibited LCRs include government policies to create a long-term, competitive, market-driven local industry through research and development support programs, training programs, infrastructure investment, and demand-side instruments (such as feed-in-tariffs, auctions, and tax incentives) to increase domestic demand.
The Model Provision seeks to advance these strategies. It is adapted from New York’s Climate Leadership and Community Protection Act of 2019.
The Model Provision is not intended to be a comprehensive, stand-alone state law. Rather, it is a provision designed to be included in more comprehensive state legislation addressing climate change mitigation or adaptation, or other legislation addressing decarbonization. Such legislation should take into consideration international and regional trade law implications under both WTO rules and the United States-Mexico-Canada-Agreement (USMCA) (which replaced NAFTA). For completeness, it should also be noted that LCRs – although the focus here – are not the only trade issue implicated in the Model Provision or decarbonization policies generally.
This document was prepared by Paul Barker (Barrister, Doughty Street Chambers, London; Research Fellow, Gould Center for Conflict Resolution, Stanford Law School, California). It was peer reviewed by Elizabeth Trujillo, the chapter author on International Trade in the LPDD text.