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Coordinating Climate and Trade Policies

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  • Michael Keen
  • Christos Kotsogiannis

Abstract

This paper explores the role of trade instruments in globally efficient climate policies, focusing on the central issue of whether some form of border tax adjustment (BTA) is warranted when carbon prices differ internationally. It shows that tariff policy has a role in easing cross-country distributional concerns that can make non-uniform carbon pricing efficient and, more particularly, that Pareto-efficiency requires a form of BTA when carbon taxes in some countries are constrained, a special case being identified in which this has the simple structure envisaged in practical policy discusions. It also stresses—a point that has been overlooked in the policy debate—that the efficiency case for BTA depends critically on whether climate policies are pursued by carbon taxation or by cap-and-trade.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/289.

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Length: 26
Date of creation: 07 Dec 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/289

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Related research

Keywords: Climate policy; Trade policy; Tariff structures; Taxation; Economic models; carbon taxes; trade policies; trade taxes; world prices; tariff rates; global welfare; terms of trade; tariff revenue; equilibrium model; import tariff; tax revenues; tariff distortions; global production; partial equilibrium; tax structures; market equilibrium; tax law review; trade reform; optimal tax; world markets; trade effect; consumption taxes; economic cooperation; pollution taxes; net exports; domestic demand; trade effects; import subsidy; international taxation; commodity prices; multilateral reforms; export tax; border taxes; trading system; environmental regulation; common tariff; terms of trade effects; trade impact; open economy; competitive position; home country; domestic price;

References

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  1. Chichilnisky, Graciela & Heal, Geoffrey, 1994. "Who should abate carbon emissions? : An international viewpoint," Economics Letters, Elsevier, Elsevier, vol. 44(4), pages 443-449, April.
  2. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 42(1), pages 7-71, March.
  3. Ben Lockwood & John Whalley, 2008. "Carbon Motivated Border Tax Adjustments: Old Wine in Green Bottles?," NBER Working Papers 14025, National Bureau of Economic Research, Inc.
  4. J. Neary, 2006. "International Trade and the Environment: Theoretical and Policy Linkages," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 33(1), pages 95-118, 01.
  5. Copeland Brian R., 1994. "International Trade and the Environment: Policy Reform in a Polluted Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 44-65, January.
  6. Moore, Michael O., 2010. "Implementing carbon tariffs : a fool's errand ?," Policy Research Working Paper Series 5359, The World Bank.
  7. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, Elsevier, vol. 85(3), pages 409-434, September.
  8. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, Elsevier, vol. 5(1), pages 15-29, February.
  9. Arja H. Turunen-Red & Alan D. Woodland, 2004. "Multilateral Reforms of Trade and Environmental Policy," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 12(3), pages 321-336, 08.
  10. Ian Sheldon, 2006. "Trade and Environmental Policy: A Race to the Bottom?," Journal of Agricultural Economics, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 365-392.
  11. Falvey, Rodney E., 1988. "Tariffs, quotas and piecemeal policy reform," Journal of International Economics, Elsevier, Elsevier, vol. 25(1-2), pages 177-183, August.
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Cited by:
  1. Ourania Karakosta & Christos Kotsogiannis & Miguel-Angel Lopez-Garcia, 2014. "Indirect tax harmonization and global public goods," International Tax and Public Finance, Springer, Springer, vol. 21(1), pages 29-49, February.

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