Reconciling Trade and Climate Policies

Jaime de Melo and Nicole Mathys

No 8760, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The outcome of the 15th conference of the Parties to the UNFCC showed a shift from a top-down approach with a collective target favoring environmental objectives to a bottom-up accord favoring political feasibility. There is no meaningful binding agreement in sight, also because the global climate regime and the global trade policy regime, represented by the WTO, appear to be on a collision course. Following a review of the challenges ahead, the paper argues that trade will have a second-order contribution to world-wide CO2 emissions. Evidence shows increasing carbon transfers through trade, but the magnitude of carbon leakage effects, likely to be induced by differences in climate mitigation policies, may be less than feared in some circles. Trade policy, however, will play a role in implementing climate mitigation policies in two areas: maintaining an open trading system and hence boosting growth and facilitating technological diffusion, and trade policy as a strategic instrument in negotiations. The paper concludes that an agreement with a few guiding principles and leeway where much initial mitigation would first take place unilaterally or in small groups, as under the early days of the GATT, is the most promising way ahead while preserving an open trading system and environmental integrity.

Keywords: Climate change; Trade policy; Carbon leakage (search for similar items in EconPapers)
JEL-codes: F18 Q54 Q56 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
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Working Paper: Reconciling Trade and Climate Policies (2012)
Working Paper: Reconciling Trade and Climate Policies (2012)
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