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Border carbon adjustments and the potential for protectionism

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Balancing a legitimate fear that carbon leakage could undermine the impact of any global climate change agreement is a countervailing fear that leakage could be the excuse for protectionism in the guise of 'border carbon adjustments'. This would be dangerous for the world trading system, risking disputes due to ambiguities in the details of World Trade Organization 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 true even given 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 (production)-based taxes and other charges (e.g. due to a cap-and-trade scheme) and those based on the destination (consumption) principle, breaks down in the case of carbon charges. The potential is explored for regional agreements to ensure origin as the basis for carbon levies, while recognizing the challenges this poses for the mutual recognition of emissions regimes in particular.

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Article provided by Taylor & Francis Journals in its journal Climate Policy.

Volume (Year): 11 (2011)
Issue (Month): 2 (March)
Pages: 883-900

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Handle: RePEc:taf:tcpoxx:v:11:y:2011:i:2:p:883-900
DOI: 10.3763/cpol.2009.0071
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  1. Aaditya Mattoo & Arvind Subramanian & Dominique van der Mensbrugghe & Jianwu He, 2009. "Reconciling Climate Change and Trade Policy," Working Papers 189, Center for Global Development.
  2. 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.
  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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