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Climate change meets trade in promoting green growth: potential conflicts and synergies

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  • Zhang, ZhongXiang

Abstract

To date, border adjustment measures in the form of emissions allowance requirements (EAR) under the U.S. proposed cap-and-trade regime are the most concrete unilateral trade measure put forward on the table to level the carbon playing field. If improperly implemented, such measures could disturb the world trade order and trigger trade war. Because of these potentially far-reaching impacts, this paper focuses on this type of unilateral border adjustment that requires importers to acquire and surrender emissions allowances corresponding to the embedded carbon contents in their goods from countries that have not taken climate actions comparable to that of home country. Our discussion is mainly on the legality of unilateral EAR under the WTO rules. Given that the inclusion of border carbon adjustment measures is widely considered essential to secure passage of any U.S. legislation capping its greenhouse gas emissions, we argue that, on the U.S. side, in designing such trade measures, WTO rules need to be carefully scrutinised, and efforts need to be made early on to ensure that the proposed measures comply with them. After all, a conflict between the trade and climate regimes, if it breaks out, helps neither trade nor the global climate. The U.S. needs to explore with its trading partners cooperative sectoral approaches to advancing low-carbon technologies and/or concerted mitigation efforts in a given sector at an international level. Moreover, to increase the prospects for a successful WTO defence of the Waxman-Markey type of border adjustment provision, 1) there should be a period of good faith efforts to reach agreements among the countries concerned before imposing such trade measures; 2) WTO consistency also requires considering alternatives to trade provisions that could be reasonably expected to fulfill the same function but are not inconsistent or less inconsistent with the relevant WTO provisions; and 3) trade provisions can refer to the designated special international reserve allowance pool, but should allow importers to submit equivalent emission reduction units that are recognized by international treaties to cover the carbon contents of imported products. The paper concludes by arguing that the major developing countries being targeted by such border carbon adjustment measures should make the best use of the forums provided under the United Nations Framework Convention on Climate Change to effectively deal with the proposed border adjustment measures to their advantage.

Suggested Citation

  • Zhang, ZhongXiang, 2009. "Climate change meets trade in promoting green growth: potential conflicts and synergies," MPRA Paper 18858, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:18858
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    References listed on IDEAS

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    1. ZhongXiang Zhang & Lucas Assunao, 2004. "Domestic Climate Policies and the WTO," The World Economy, Wiley Blackwell, vol. 27(3), pages 359-386, March.
    2. ZhongXiang Zhang, 2003. "Open Trade with the U.S. without Compromising Canada’s Ability to Comply with its Kyoto Target," Working Papers 2003.68, Fondazione Eni Enrico Mattei.
    3. Kevin Honglin Zhang, 2009. "Rise of Chinese Multinational Firms," Chinese Economy, Taylor & Francis Journals, vol. 42(6), pages 81-96, November.
    4. Zhongxiang Zhang, 2007. "Why has China not embraced a global cap-and-trade regime?," Climate Policy, Taylor & Francis Journals, vol. 7(2), pages 166-170, March.
    5. ZhongXiang Zhang, 1998. "The Economics of Energy Policy in China," Books, Edward Elgar Publishing, number 1291, April.
    6. World Bank, 2007. "International trade and Climate Change : Economic, Legal, and Institutional Perspectives," World Bank Publications, The World Bank, number 6831.
    7. Zhang, ZhongXiang, 2009. "How far can developing country commitments go in an immediate post-2012 climate regime?," Energy Policy, Elsevier, vol. 37(5), pages 1753-1757, May.
    8. Zhang, ZhongXiang, 2000. "Can China afford to commit itself an emissions cap? An economic and political analysis," Energy Economics, Elsevier, vol. 22(6), pages 587-614, December.
    9. Zhang, ZhongXiang, 2009. "Multilateral trade measures in a post-2012 climate change regime? What can be taken from the Montreal Protocol and the WTO?," Energy Policy, Elsevier, vol. 37(12), pages 5105-5112, December.
    10. 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.
    11. Kent Matthews & Zhiguo Xiao & Xu Zhang, 2009. "Rational Cost Inefficiency in Chinese Banks," Working Papers 292009, Hong Kong Institute for Monetary Research.
    12. Parry, Ian W. H. & Williams, Roberton III & Goulder, Lawrence H., 1999. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 52-84, January.
    13. Bhagwati, Jagdish & Mavroidis, Petros C., 2007. "Is action against US exports for failure to sign Kyoto Protocol WTO-legal?," World Trade Review, Cambridge University Press, vol. 6(02), pages 299-310, July.
    14. Niklas Ahlgren & Bo Sjo & Jianhua Zhang, 2009. "Panel cointegration of Chinese A and B shares," Applied Financial Economics, Taylor & Francis Journals, vol. 19(23), pages 1859-1871.
    15. Zhang, Ying & Filippov, Sergey, 2009. "Internationalization of Chinese firms in Europe," MERIT Working Papers 041, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    16. Zhang, ZhongXiang, 1998. "Greenhouse gas emissions trading and the world trading system," MPRA Paper 12971, University Library of Munich, Germany.
    17. Roland Ismer & Karsten Neuhoff, 2007. "Border tax adjustment: a feasible way to support stringent emission trading," European Journal of Law and Economics, Springer, vol. 24(2), pages 137-164, October.
    18. Zhang, Zhong Xiang, 1999. "Should the rules of allocating emissions permits be harmonised?," Ecological Economics, Elsevier, vol. 31(1), pages 11-18, October.
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    Citations

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    Cited by:

    1. Thomas Eichner & Rüdiger Pethig, 2015. "Unilateral Climate Policy with Production-Based and Consumption-Based Carbon Emission Taxes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 141-163, June.
    2. Zhang, ZhongXiang, 2010. "China in the transition to a low-carbon economy," Energy Policy, Elsevier, vol. 38(11), pages 6638-6653, November.
    3. Julien Bueb & Lilian Richieri Hanania & Alice Leclezio, 2016. "Border adjustment mechanisms : Elements for economic, legal, and political analysis," Sciences Po publications 2016/20, Sciences Po.
    4. Julien Bueb & Lilian Hanania & Alice Le Clézio, 2016. "Border adjustment mechanisms Elements for economic, legal, and political analysis," WIDER Working Paper Series 020, World Institute for Development Economic Research (UNU-WIDER).
    5. Julien Bueb & Lilian Richieri Hanania & Alice Leclezio, 2017. "Border Adjustment Mechanisms: Elements for Economic, Legal, and Political Analysis," Sciences Po publications info:hdl:2441/3fenpfdsd19, Sciences Po.
    6. Eichner, Thomas & Pethig, Rüdiger, 2015. "Unilateral consumption-based carbon taxes and negative leakage," Resource and Energy Economics, Elsevier, vol. 40(C), pages 127-142.

    More about this item

    Keywords

    Post-2012 climate negotiations; Border carbon adjustments; Carbon tariffs; Emissions allowance requirements; Cap-and-trade regime; Lieberman-Warner bill; Waxman-Markey bill; World Trade Organization; Kyoto Protocol; Developing countries; United States;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • 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
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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