Why carbon border adjustment mechanisms will not save the planet but a climate club and subsidies for transformative green technologies may

David Tarr, Dmitrii E. Kuznetsov, Indra Overland and Roman Vakulchuk

Energy Economics, 2023, vol. 122, issue C

Abstract: We find that both empirical results and economic theory show that carbon border adjustment mechanisms (CBAMs) will be ineffective at meeting global goals for carbon emissions reduction; but CBAMs will be effective at improving the competitiveness of the domestic industries by assuring that imports bear equal costs of carbon pricing. We elaborate two complementary proposals that hold greater promise for meeting climate goals: (i) a Climate Club, where member countries impose a minimum price for carbon emissions at home and a tariff surcharge on all imports from non-member countries; and (ii) a 0.2%-of-GDP subsidy by high-income countries for transformative research designed to make green energy cheaper than fossil fuels. We discuss multiple paths for a Climate Club to be accommodated within the rules of the World Trade Organization and recommend use of the exception clause under GATT Article XX.

Keywords: Carbon border adjustment; Climate Club; Game-changing technologies; Carbon leakage; World Trade Organization; Russia (search for similar items in EconPapers)
JEL-codes: C68 F18 K33 Q52 Q54 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:122:y:2023:i:c:s0140988323001937

DOI: 10.1016/j.eneco.2023.106695

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