Virtual Water, Embodied Carbon and Trade Law: Conflict or Coexistence?

Abstract

Water shortages and climate change are among the most serious threats facing humanity, and are of immense environmental and human rights significance. This paper addresses the efforts made to deal with these threats under international trade law, with special focus on the General Agreement on Tariffs and Trade (GATT). In the case of water, the input is ‘virtual water’, i.e., the water that is consumed during the life cycle of a good or service (development, production, transport, etc.) up to the point that it is exported. In the case of climate change, the input is ‘embodied carbon’, i.e., the carbon that is emitted into the atmosphere during the life cycle of a good or service (development, production, transport, etc.) up to the point it is imported.

In each case, countries are likely to increase regulation of these inputs, and may employ measures that affect international trade. In the case of virtual water, countries will be interested in protecting their own water supply from being consumed excessively to produce goods, such as agricultural commodities, for export. In the case of embodied carbon, countries with strict carbon emissions standards will be interested in protecting their domestic producers from competition by goods from countries with less strict, and thus less costly, carbon emissions standards, as well as in preventing carbon leakage.

This paper analyses three possible types of control measures for each of virtual water and embodied carbon, which reveals uncertainties in the trade law analysis and demonstrates that good faith efforts to deal with water shortages and climate change might run afoul of international trade regimes, thus setting up a conflict between these areas of law. A particularly important aspect stems from the fact that both virtual water and embodied carbon have significant human rights implications, thus raising the issue of how human rights should be treated vis-à-vis international trade. In addition to discussing that relationship, the paper identifies four jurisprudential means of avoiding regime conflict, as well as the possibility of a trade waiver for climate change.