Encouraging Developing Country Involvement in a Post-2012 Climate Change Regime: Carrots, Sticks or Both?

Abstract

The climate-trade nexus has become the focus of an academic debate, and has gained increasing attention as governments are taking great efforts to forge a post-2012 climate change regime to succeed the Kyoto Protocol. With concerns about their own competitiveness and growing greenhouse gas emissions in developing countries, some industrialized countries, if not all, are considering whether to impose unilateral trade measures against developing country trading partners. While it is clear that greenhouse gas emissions targets of developed countries need to be tightened further in a post-2012 climate change regime, developing country involvement is also crucial for climate change mitigation and adaptation, given that climate change is a global problem requiring a global response. This raises the issue of which approach would be most likely to stimulate developing countries to take appropriate actions in the post-2012 climate regime. Would positive or negative incentives work best, in other words, do we need carrots, sticks or both?

This paper seeks to answer this question. By revisiting the six options for China's climate change engagement that I envisioned a decade ago and examining a variety of factors, the paper first discusses how far developing country commitments can go in an immediate post-2012 climate regime. It argues that developing country commitments are most unlikely to go beyond defined policies and measures in this timeframe. It notes that the type of border adjustment provisions currently being discussed by most developed countries include more sticks than carrots for developing countries. Sticks can be incorporated, but only if they are credible and realistic and serve as a useful supplement to push developing countries to take actions or adopt policies and measures earlier than would otherwise have been the case. In order to encourage developing countries to do more to combat climate change, the paper suggests that developed countries should rather focus on carrots.

Keywords: A post-2012 climate change regime, Developing country commitments, Climate-trade nexus, Climate change mitigation and adaptation, Border adjustment measures, WTO scrutiny, The Lieberman-Warner bill

JEL Classification: F18, Q48, Q54, Q56, Q58