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

Author

Listed:
  • Tarr, David G.
  • Kuznetsov, Dmitrii E.
  • Overland, Indra
  • Vakulchuk, Roman

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.

Suggested Citation

  • Tarr, David G. & Kuznetsov, Dmitrii E. & Overland, Indra & Vakulchuk, Roman, 2023. "Why carbon border adjustment mechanisms will not save the planet but a climate club and subsidies for transformative green technologies may," Energy Economics, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:eneeco:v:122:y:2023:i:c:s0140988323001937
    DOI: 10.1016/j.eneco.2023.106695
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    More about this item

    Keywords

    Carbon border adjustment; Climate Club; Game-changing technologies; Carbon leakage; World Trade Organization; Russia;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • F18 - International Economics - - Trade - - - Trade and Environment
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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