Can tariffs be used to enforce Paris climate commitments?

Niven Winchester

The World Economy, 2018, vol. 41, issue 10, 2650-2668

Abstract: We evaluate the potential of border carbon adjustments (BCAs) and strategic tariffs to compel noncompliant countries to meet emission reduction targets pledged under the Paris Climate Agreement. Our analysis employs a numerical economy‐wide model with energy sector detail and, given recent actions by the US administration, considers BCAs on US exports. We find that when the US does not restrict emissions and faces BCAs on its exports, US welfare losses are smaller than when the US meets its Paris commitments. Hence, BCAs are preferable for the US and cannot be used to enforce Paris climate commitments. The use of strategic tariffs, on the contrary, would result in a trade war and a larger welfare decrease in US welfare than when it meets its Paris commitments. Strategic tariffs also decrease welfare in countries that meet their Paris pledges. Accordingly, strategic tariffs, which are much higher than BCA rates, can be used to enforce Paris climate commitments if compliant countries are willing to incur welfare losses to punish non‐compliant countries.

Date: 2018
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