IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v94y2014i1p119-128.html
   My bibliography  Save this article

Coordinating climate and trade policies: Pareto efficiency and the role of border tax adjustments

Author

Listed:
  • Keen, Michael
  • Kotsogiannis, Christos

Abstract

This paper explores the role of trade instruments in globally efficient climate policies, focusing on whether or not some form of border tax adjustment (BTA) is warranted when carbon prices differ internationally. The analysis shows that, while there is no case for BTA when all instruments can be freely deployed, Pareto-efficiency does require a form of BTA when carbon taxes in some countries are constrained: its purpose then is to partly counteract the impact on emissions of inappropriate carbon pricing there, or, equivalently, to undo the trade distortions such pricing creates. The required form of BTA is generally complex, but a special case is identified in which it optimally has the simple structure envisaged in practical policy discussions. It is also shown that the efficiency case for BTA depends critically on whether climate policies are pursued by carbon taxation or by cap-and-trade.

Suggested Citation

  • Keen, Michael & Kotsogiannis, Christos, 2014. "Coordinating climate and trade policies: Pareto efficiency and the role of border tax adjustments," Journal of International Economics, Elsevier, vol. 94(1), pages 119-128.
  • Handle: RePEc:eee:inecon:v:94:y:2014:i:1:p:119-128
    DOI: 10.1016/j.jinteco.2014.03.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022199614000403
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chichilnisky, Graciela & Heal, Geoffrey, 1994. "Who should abate carbon emissions? : An international viewpoint," Economics Letters, Elsevier, vol. 44(4), pages 443-449, April.
    2. Arik Levinson & M. Scott Taylor, 2008. "Unmasking The Pollution Haven Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 223-254, February.
    3. Michael O. Moore, 2011. "Implementing Carbon Tariffs: A Fool’s Errand?," The World Economy, Wiley Blackwell, vol. 34(10), pages 1679-1702, October.
    4. Ian Sheldon, 2006. "Trade and Environmental Policy: A Race to the Bottom?," Journal of Agricultural Economics, Wiley Blackwell, vol. 57(3), pages 365-392.
    5. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 7-71, March.
    6. Daniel Osberghaus & Christiane Reif, 2010. "Total Costs and Budgetary Effects of Adaptation to Climate Change: An Assessment for the European Union," CESifo Working Paper Series 3143, CESifo Group Munich.
    7. Daniel Gros, 2009. "Global Welfare Implications of Carbon Border Taxes," CESifo Working Paper Series 2790, CESifo Group Munich.
    8. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, January.
    9. Turunen-Red, Arja H. & Woodland, Alan D., 1988. "On the multilateral transfer problem : Existence of Pareto improving international transfers," Journal of International Economics, Elsevier, vol. 25(3-4), pages 249-269, November.
    10. repec:clg:wpaper:2008-02 is not listed on IDEAS
    11. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
    12. Trevor Houser & Rob Bradley & Britt Childs, 2008. "Leveling the Carbon Playing Field: International Competition and US Climate Policy Design," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4204.
    13. Hoel, Michael, 1996. "Should a carbon tax be differentiated across sectors?," Journal of Public Economics, Elsevier, vol. 59(1), pages 17-32, January.
    14. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    15. Jota Ishikawa & Kazuharu Kiyono, 2006. "Greenhouse-Gas Emission Controls In An Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 431-450, May.
    16. 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.
    17. Ben Lockwood & John Whalley, 2010. "Carbon-motivated Border Tax Adjustments: Old Wine in Green Bottles?," The World Economy, Wiley Blackwell, vol. 33(6), pages 810-819, June.
    18. Falvey, Rodney E., 1988. "Tariffs, quotas and piecemeal policy reform," Journal of International Economics, Elsevier, vol. 25(1-2), pages 177-183, August.
    19. Stiglitz Joseph, 2006. "A New Agenda for Global Warming," The Economists' Voice, De Gruyter, vol. 3(7), pages 1-4, July.
    20. Michael Keen & David Wildasin, 2004. "Pareto-Efficient International Taxation," American Economic Review, American Economic Association, vol. 94(1), pages 259-275, March.
    21. Arja H. Turunen-Red & Alan D. Woodland, 2004. "Multilateral Reforms of Trade and Environmental Policy," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 321-336, August.
    22. Kotsogiannis, Christos & Woodland, Alan, 2013. "Climate and international trade policies when emissions affect production possibilities," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 166-184.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nikos Tsakiris & Michael Michael & Panos Hatzipanayotou, 2014. "Asymmetric Tax Policy Responses in Large Economies With Cross-Border Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(4), pages 563-578, August.
    2. Gori, Giuseppe Francesco & Lambertini, Luca, 2013. "Trade liberalisation between asymmetric countries with environmentally concerned consumers," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 549-560.
    3. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2016. "On the Efficiency of Destination and Origin Commodity Taxation in the Presence of Consumption Generated Cross-Border Pollution," CESifo Working Paper Series 6221, CESifo Group Munich.
    4. Ian Parry, 2013. "Fiscal instruments for climate finance," Chapters,in: Handbook on Energy and Climate Change, chapter 16, pages 377-402 Edward Elgar Publishing.
    5. William Brock & Gustav Engstrom & Anastasios Xepapadeas, 2012. "Energy Balance Climate Models and the Spatial Structure of Optimal Mitigation Policies," Working Papers 2012.05, Fondazione Eni Enrico Mattei.
    6. Christos Kotsogiannis & Alan Woodland, 2018. "Climate Change, Strict Pareto Improvements in Welfare and Multilateral Income Transfers," Discussion Papers 2018-04, School of Economics, The University of New South Wales.
    7. Brock, William & Engström, Gustav & Xepapadeas, Anastasios, 2014. "Spatial climate-economic models in the design of optimal climate policies across locations," European Economic Review, Elsevier, vol. 69(C), pages 78-103.
    8. Nikos Tsakiris & Panos Hatzipanayotou & Michael S. Michael, 2015. "Emission Permits and Public Pollution Abatement:: Can Decentralized Environmental Policies be Efficient?," CESifo Working Paper Series 5278, CESifo Group Munich.
    9. Ourania Karakosta & Christos Kotsogiannis & Miguel-Angel Lopez-Garcia, 2014. "Indirect tax harmonization and global public goods," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 29-49, February.
    10. Brock, William A. & Engström, Gustav & Grass, Dieter & Xepapadeas, Anastasios, 2013. "Energy balance climate models and general equilibrium optimal mitigation policies," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2371-2396.

    More about this item

    Keywords

    Environmental taxation; Cap-and-trade; International trade; Pareto efficiency; Border tax adjustments;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • F18 - International Economics - - Trade - - - Trade and Environment

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:94:y:2014:i:1:p:119-128. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.