Reconciling Climate Change and Trade Policy

Aaditya Mattoo, Arvind Subramanian, Dominique van der Mensbrugghe () and Jianwu He

No 189, Working Papers from Center for Global Development

Abstract: There is growing clamor in industrial countries for additional border taxes on imports from countries with lower carbon prices. A key factor affecting the impact of these taxes is whether they are based on the carbon content of imports or the carbon content in domestic production. Our quantitative estimates suggest that the former action when applied to all merchandise imports would address competitiveness and environmental concerns in high income countries but with serious consequences for trading partners. For example, China’s manufacturing exports would decline by one-fifth and those of all low- and middle-income countries by 8 percent; the corresponding declines in real income would be 3.7 percent and 2.4 percent. In contrast, border tax adjustment based on the carbon content in domestic production, especially if applied to both imports and exports, would broadly address the competitiveness concerns of producers in high income countries without seriously damaging developing-country trade. Therefore, as part of a comprehensive agreement on climate change, new WTO rules could be negotiated that would prohibit the extreme form of action while possibly allowing trade actions based on domestic carbon content as a safety valve.

Keywords: trade; trade policy; environment; climate change (search for similar items in EconPapers)
JEL-codes: F13 F18 H23 Q56 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2009-11
New Economics Papers: this item is included in nep-ene, nep-env and nep-int
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Citations: View citations in EconPapers (146)

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Related works:
Working Paper: Reconciling Climate Change and Trade Policy (2009)
Working Paper: Reconciling climate change and trade policy (2009)
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