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Border Carbon Adjustments and the Potential for Protectionism

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  • Peter Holmes

    ()
    (Department of Economics, University of Sussex)

  • Tom Reilly
  • Jim Rollo

    ()
    (Politics and Contemporary European Studies, University of Sussex)

Abstract

Balancing legitimate fears that carbon leakage could undermine the impact of any global climate change agreement are countervailing fears that leakage will be the excuse for protectionism in the guise of “Border Carbon Adjustments”. This would have dangers for the world trading system, risking disputes due to ambiguities in the details of WTO rules over what types of border measures are potentially and actually admissible. Even with good quality data, there is considerable potential for judgemental discretion, and hence opportunistic manipulation, in estimating the carbon charges to levy on an imported product. This is even with agreement on whether to use importer or exporter coefficients. A clear distinction needs to be made between environmental and competitiveness motives for border adjustments. The key argument is that the traditional symmetry between origin based taxes (production) and other charges and those based on the destination (consumption) principle breaks down in the case of carbon charges. This paper explores the potential for regional agreements to ensure origin as the basis for carbon levies in the aftermath of the Copenhagen Accord, while recognising the challenges that this poses for the mutual recognition of emissions regimes in particular.

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Bibliographic Info

Paper provided by Department of Economics, University of Sussex in its series Working Paper Series with number 0610.

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Date of creation: Aug 2010
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Handle: RePEc:sus:susewp:0610

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Keywords: Competitiveness; carbon leakage; cap-and-trade (C&T); trade policy; WTO and regionalism.;

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  1. Onno Kuik & Reyer Gerlagh, 2003. "Trade Liberalization and Carbon Leakage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 97-120.
  2. Aaditya Mattoo & Arvind Subramanian & Dominique van der Mensbrugghe & Jianwu He, 2009. "Reconciling Climate Change and Trade Policy," Working Papers 189, Center for Global Development.
  3. European Commission, 2010. "Innovative Financing at a Global Level," Taxation Papers 23, Directorate General Taxation and Customs Union, European Commission.
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Cited by:
  1. Fouré, Jean & Guimbard, Houssein & Monjon, Stéphanie, 2013. "Border Carbon Ajustment in Europe and Trade Retaliation: What would be the Cost for European Union?," Economics Papers from University Paris Dauphine 123456789/13008, Paris Dauphine University.

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