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Optimal environmental border adjustments under the General Agreement on Tariffs and Trade

Author

Listed:
  • Edward Balistreri

    (Colorado School of Mines)

  • Daniel Kaffine

    (University of Colorado Boulder)

  • Hidemichi Yonezawa

    (ETH Zurich, Switzerland)

Abstract

A country's optimal environmental border policy includes a strategic component that is inconsistent with commitments under the General Agreement on Tariffs and Trade (GATT). We extend the theory to include GATT compliance. Theory supports optimal border adjustments on carbon content that are below the domestic carbon price, because price signals sent through border adjustments encourage consumption of emissions intensive goods in unregulated regions. The theory is supported in our applied numeric simulations. Countries imposing border adjustments at the domestic carbon price will be extracting rents from unregulated regions at the expense of effcient environmental policy and consistency with international trade law.

Suggested Citation

  • Edward Balistreri & Daniel Kaffine & Hidemichi Yonezawa, 2016. "Optimal environmental border adjustments under the General Agreement on Tariffs and Trade," CER-ETH Economics working paper series 16/235, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:16-235
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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