Effectiveness of Trade Sanctions as an Enforcement Mechanism in Greenhouse Gas Mitigation Agreements in Agriculture and Forestry

This study explores the conditions under which a trade sanction can be an effective enforcement mechanism used by the US against China in global greenhouse (GHG) mitigation in agriculture and forestry. The problem has the structure of prisoner’s dilemma and hence both the US and China have incentive to free-ride in GHG emissions abatement. It is found that if the US joined the rest of the world (ROW) in emissions abatement in agriculture and forestry, the US could also convince China to comply with abatement using trade sanctions. In this study, trade sanctions are considered as a deterrent to free-riding. For threats of trade sanctions to become a viable enforcement mechanism tariff rates have to achieve two conditions defined in this study: credibility and effectiveness. In a scenario where China is the only region refusing to implement an emissions tax on its GHG from agricultural and forestry sectors it is shown that there may be a window in which trade sanctions constitute a viable enforcement mechanism for the environmental agreement. This window is depicted by tariff rates below 9% (these rates achieve credibility) and above an increasing lower bound (denoting rates achieving effectiveness). The lower bound intersects 9% at a carbon tax of $80/TCE implying that; 1) at carbon taxes above $80/TCE trade sanctions are no longer a viable enforcement mechanism for the environmental agreement, and 2) the viability of trade sanctions as an enforcement mechanism may be limited to a certain level of targeted abatement.