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Trade and Climate Change: The Challenges Ahead

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  • de Melo, Jaime
  • Mathys, Nicole Andréa

Abstract

The outcome of the 15th conference of the Parties to the UNFCC showed a shift from a top-down approach with a collective target favoring environmental objectives to a bottom-up accord favoring political feasibility with no meaningful binding agreement in sight as the global climate regime and the global trade policy regime represented by the WTO appear to be on a collision course. Following a review of the alternative architectures for the next Climate Change Agreement, the paper outlines four areas in which trade will play a role: as a purveyor of technological transfer; as a mechanism to separate where abatement takes place from who bears the cots of abatement; as a participation mechanism; and as a way to address the pressures for border adjustments. Political-economy considerations are invoked to predict that a target system with a carbon credit system will be preferable to a carbon tax or to a portfolio system of treaties. A review of evidence on the extent of pollution haven effects suggests that these should be small under climate mitigation policies, especially if efforts are undertaken to raise the price of energy. A discussion of border measures to complement mitigation policies suggests that they are unlikely to be found compatible with the environmental exceptions allowed under article XX of the GATT. The review concludes that an umbrella agreement with leeway where much initial mitigation would first take place unilaterally as under the early days of the GATT might be the most promising way ahead while preserving an open World Trading System and environmental integrity.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8032.

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Date of creation: Sep 2010
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Handle: RePEc:cpr:ceprdp:8032

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Keywords: Climate Change; WTO;

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References

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Citations

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Cited by:
  1. Nicole A. MATHYS & Jaime de MELO, 2011. "The Political Economy of Climate Change Policies: Political Economy Aspects of Climate Change Mitigation Efforts," Working Papers P24, FERDI.
  2. Rahel Aichele, 2013. "Trade, Climate Policy and Carbon Leakage - Theory and Empirical Evidence," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, number 49.
  3. Aichele, Rahel & Felbermayr, Gabriel, 2012. "Kyoto and the carbon footprint of nations," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 336-354.
  4. Harun Onder, 2012. "Trade and Climate Change : An Analytical Review of Key Issues," World Bank Other Operational Studies 10036, The World Bank.
  5. Nicole A. MATHYS & Jaime de MELO, 2012. "Reconciling Trade and Climate Policies," Working Papers P37, FERDI.
  6. Patrick MESSERLIN, 2011. "Climate, trade and water: A “grand coalition”?," Working Papers P23, FERDI.
  7. Henrik Horn & Petros C. Mavroidis, 2011. "To B(TA) or Not to B(TA)? On the Legality and Desirability of Border Tax Adjustments from a Trade Perspective," The World Economy, Wiley Blackwell, vol. 34(11), pages 1911-1937, November.
  8. Jaime de MELO, 2012. "Trade in a ‘Green Growth’ Development Strategy Global Scale Issues and Challenges," Working Papers P48, FERDI.
  9. Patrick MESSERLIN, 2011. "Climate, trade and water: A “grand coalition”?," Working Papers P23, FERDI.

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