US Energy Taxes may cause unfair trade competition

In recent months, the United States has come under sustained international scrutiny for its positions on global taxation and energy-related fiscal measures. Between its continued non-implementation of the OECD/G20 Pillar Two global minimum tax, its rejection of a United Nations–backed global carbon tax, and adverse rulings at the World Trade Organization regarding U.S. clean energy tax credits, U.S. policy choices are increasingly perceived as misaligned with multilateral legal and trade frameworks. These developments, spanning 2025 and early 2026, raise material concerns for international tax coordination, climate governance, and cross-border trade compliance.

US Multilateral commitments tested by Unilateral Choices

At the international level, the U.S. has declined to fully implement Pillar Two of the OECD/G20 Inclusive Framework, which establishes a 15% global minimum effective tax rate for large multinational enterprises. While most participating jurisdictions have enacted domestic minimum top-up taxes or income inclusion rules, the U.S. continues to rely on its own minimum tax regime, effectively securing carve-outs for U.S headed groups and weakening the uniform application of the global standard.

In parallel, the U.S. has formally rejected proposals advanced within the United Nations system to introduce a worldwide carbon tax, including sector-specific mechanisms such as the International Maritime Organization’s Net Zero Framework. U.S. authorities have framed these initiatives as an infringement on fiscal sovereignty and domestic policy autonomy.

Contrasting sharply with this resistance to multilateral energy taxation, the U.S. has adopted expansive domestic clean energy tax credits under the Inflation Reduction Act. In February 2026, a dispute panel of the World Trade Organization ruled that certain U.S. clean energy tax incentives unlawfully discriminate against imported products, violating national treatment obligations under WTO law. The ruling follows growing criticism that these credits function as trade-distorting subsidies favoring domestic production.

Legal Background and World Trade Organization Rationale

The adverse ruling against the United States is rooted in long-standing principles of multilateral trade law, rather than opposition to climate policy as such. The dispute arose from complaints that key clean energy tax credits enacted under the Inflation Reduction Act were conditional on the use of domestically produced inputs or local content requirements. From a WTO law perspective, this structure triggered scrutiny under the core disciplines of non-discrimination.

Under the General Agreement on Tariffs and Trade, WTO Members are bound by the principles of national treatment and most-favoured-nation treatment, which prohibit internal taxes or regulations that afford protection to domestic production over imported goods. In its findings, the World Trade Organization panel concluded that certain U.S. clean energy tax credits were de facto contingent on domestic sourcing and therefore operated as trade-distorting subsidies. While the objective of accelerating decarbonisation was acknowledged, the panel emphasized that WTO law does not permit Members to pursue industrial or environmental policy through discriminatory fiscal measures.

The background to this ruling is particularly relevant. For several years, the WTO has faced criticism especially from the United States for perceived institutional overreach and inefficiencies in dispute settlement. Nevertheless, the legal reasoning applied in this case follows settled jurisprudence developed in earlier disputes concerning local content requirements, renewable energy subsidies, and border-neutrality of tax incentives. The panel relied on a consistent line of cases holding that tax advantages tied to domestic production, even when framed as environmental incentives, violate subsidy and national treatment obligations if they disadvantage imported products.

This legal context exposes a fundamental inconsistency in U.S. policy. On the one hand, the United States rejects multilateral climate taxation mechanisms under the United Nations framework on sovereignty grounds. On the other hand, it deploys unilateral tax instruments to advance domestic energy and industrial objectives in ways that conflict with binding multilateral trade commitments. The WTO ruling therefore reflects not a novel legal interpretation, but the application of orthodox trade law principles to an increasingly politicised area of fiscal policy.

Crucially, the ruling underscores that climate ambition does not operate as a general exception under WTO law. While environmental exceptions exist, they require measures to be proportionate, non-discriminatory, and not disguised restrictions on trade. The U.S. measures failed this legal test, reinforcing the message that unilateral energy tax policies cannot selectively bypass multilateral trade disciplines.

Implications for Businesses

For multinational groups, the U.S. approach introduces a fragmented and legally uncertain landscape. The absence of full Pillar Two implementation in the U.S. shifts the compliance burden to non-U.S. jurisdictions through undertaxed profits rules, increasing complexity, reporting obligations, and potential exposure to double taxation. Non-U.S. groups may face higher effective tax rates, while U.S. multinationals benefit from a de facto competitive advantage, heightening tax asymmetries across global value chains.

On the energy and trade side, the WTO ruling signals tangible legal risk for businesses relying on U.S. clean energy tax credits, particularly where supply chains involve cross-border components. Retaliatory trade measures, subsidy withdrawal obligations, or regulatory adjustments remain plausible scenarios. Simultaneously, the U.S. rejection of a global carbon tax framework limits predictability for companies operating across jurisdictions that are moving toward coordinated carbon pricing and climate-linked fiscal measures.

In the short term, businesses must navigate conflicting international standards, heightened scrutiny from tax authorities, and potential trade disputes. In the long term, these tensions risk accelerating regulatory fragmentation, complicating cross-border investment decisions, energy transition planning, and global tax governance strategies.

How MCORE LAW Can Help

Through integrated international tax, trade, and regulatory advisory services, MCORE LAW helps clients anticipate regulatory shifts, structure compliant and resilient operations, and engage in forward-looking planning amid increasing multilateral tension. In a landscape marked by unilateralism and legal uncertainty, informed strategic guidance is essential to protect value and ensure sustainable cross-border operations.