IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

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

Listed author(s):
  • Edward J. Balistreri


    (Division of Economics and Business, Colorado School of Mines)

  • Daniel T. Kaffine


    (Department of Economics, University of Colorado, at Boulder)

  • Hidemichi Yonezawa


    (Institute of the Environment, University of Ottawa)

We consider the legal and economic context for border adjustments that might be used to augment subglobal carbon abatement. Following Markusen (1975) we establish optimal border policy in the presence of cross-border environmental damages. The optimal border policy includes a strategic component that is inconsistent with legal commitments under the General Agreement on Tariffs and Trade (GATT). Incorporating GATT compliance into the theory indicates an optimal border adjustment that taxes the carbon content of trade below the domestic carbon price. This theoretic finding is in contrast to the standard advice to impose the domestic carbon price on the carbon content of trade. The wedge between the domestic carbon price and the optimal environmental border adjustment occurs in general equilibrium because border adjustments inadvertently drive up consumption of emissions intensive goods in unregulated regions. We conclude our analysis with numeric simulations of Annex-I carbon policy. We find an optimal import tariff on the carbon content of aluminum that is on the order of 50% of the domestic carbon price. Countries that impose border carbon adjustments at the domestic carbon price will be extracting rents from unregulated regions at the expense of efficient environmental policy and consistency with international law.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: First version, 2014
Download Restriction: no

Paper provided by Colorado School of Mines, Division of Economics and Business in its series Working Papers with number 2014-03.

in new window

Length: 34 pages
Date of creation: Feb 2014
Handle: RePEc:mns:wpaper:wp201403
Contact details of provider: Postal:
Golden, Colorado 80401

Phone: (303) 273-3480
Fax: (303) 273-3416
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mns:wpaper:wp201403. 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: (Edward Balistreri)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.