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Coordinating Climate and Trade Policies: Pareto Efficiency and the Role of Border Tax Adjustments

  • Michael Keen

    (International Monetary Fund)

  • Christos Kotsogiannis

    (Department of Economics, University of Exeter)

This paper explores the role of trade instruments in globally efficient climate policies, focusing on the central issue of whether 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 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 discussion. It also stresses—a point that has been overlooked in the policy debate—that the case for BTA depends critically on whether climate policies are pursued by carbon taxation or by cap-and-trade.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP1106.pdf
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Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 1106.

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Date of creation: 2011
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Handle: RePEc:exe:wpaper:1106
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  1. Daniel Gros, 2009. "Global Welfare Implications of Carbon Border Taxes," CESifo Working Paper Series 2790, CESifo Group Munich.
  2. J. Neary, 2006. "International Trade and the Environment: Theoretical and Policy Linkages," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 33(1), pages 95-118, 01.
  3. 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, 02.
  4. 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, 08.
  5. Graciela Chichilnisky & Geoffrey Heal, 1993. "Who Should Abate Carbon Emissions? An International Viewpoint," NBER Working Papers 4425, National Bureau of Economic Research, Inc.
  6. Michael Keen & David Wildasin, 2004. "Pareto-Efficient International Taxation," American Economic Review, American Economic Association, vol. 94(1), pages 259-275, March.
  7. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
  8. Osberghaus, Daniel & Reif, Christiane, 2010. "Total costs and budgetary effects of adaptation to climate change: An assessment for the European Union," ZEW Discussion Papers 10-046, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Falvey, Rodney E., 1988. "Tariffs, quotas and piecemeal policy reform," Journal of International Economics, Elsevier, vol. 25(1-2), pages 177-183, August.
  10. Michael O. Moore, 2011. "Implementing Carbon Tariffs: A Fool’s Errand?," The World Economy, Wiley Blackwell, vol. 34(10), pages 1679-1702, October.
  11. Hoel, M., 1993. "Should a Carbon Tax Be Differentiated Across Sectors?," Memorandum 09/1993, Oslo University, Department of Economics.
  12. 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, 06.
  13. Copeland,B.R. & Scott Taylor,M., 2003. "Trade, growth and the environment," Working papers 10, Wisconsin Madison - Social Systems.
  14. 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.
  15. repec:cup:cbooks:9780521311120 is not listed on IDEAS
  16. 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, 05.
  17. Stiglitz Joseph, 2006. "A New Agenda for Global Warming," The Economists' Voice, De Gruyter, vol. 3(7), pages 1-4, July.
  18. 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, December.
  19. 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.
  20. Ian Sheldon, 2006. "Trade and Environmental Policy: A Race to the Bottom?," Journal of Agricultural Economics, Wiley Blackwell, vol. 57(3), pages 365-392.
  21. repec:cup:cbooks:9780521322249 is not listed on IDEAS
  22. 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.
  23. Arik Levinson, 2006. "Unmasking the Pollution Haven Effect," Working Papers 2008-02, Department of Economics, University of Calgary, revised 01 Jan 2008.
  24. 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.
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