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Reconciling Climate Change and Trade Policy

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Author Info

  • Aaditya Mattoo

    ()
    (World Bank)

  • Arvind Subramanian

    ()
    (Peterson Institute for International Economics)

  • Dominique van der Mensbrugghe
  • Jianwu He

Abstract

There is growing clamor in industrial countries for additional border taxes on imports from countries with lower carbon prices. While this paper confirms the findings of other research that unilateral emissions cuts by industrial countries will have minimal carbon leakage effects, output and exports of energy-intensive manufactures are projected to decline, potentially creating pressure for trade action. A key factor affecting the impact of any border taxes is whether they are based on the carbon content of imports or the carbon content of domestic production. The paper's 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. Border tax adjustment based on the carbon content in domestic production would broadly address the competitiveness concerns of producers in high income countries and less seriously damage developing country trade.

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Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP09-15.

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Date of creation: Dec 2009
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Handle: RePEc:iie:wpaper:wp09-15

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Keywords: trade; trade policy; environment; climate change;

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