Reconciling Climate Change and Trade Policy

45 Pages Posted: 2 Dec 2009

See all articles by Aaditya Mattoo

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Arvind Subramanian

International Monetary Fund (IMF); Center for Global Development

Dominique van der Mensbrugghe

World Bank

Jianwu He

World Bank

Multiple version iconThere are 3 versions of this paper

Date Written: November 10, 2009

Abstract

There is growing clamor in industrial countries for additional border taxes on imports from countries with lower carbon prices. A key factor affecting the impact of these taxes is whether they are based on the carbon content of imports or the carbon content in domestic production. Our quantitative estimates suggest that the former action when applied to all merchandise imports would address competitiveness and environmental concerns in high income countries but with serious consequences for trading partners. For example, China’s manufacturing exports would decline by one-fifth and those of all low- and middle-income countries by 8 percent; the corresponding declines in real income would be 3.7 percent and 2.4 percent. In contrast, border tax adjustment based on the carbon content in domestic production, especially if applied to both imports and exports, would broadly address the competitiveness concerns of producers in high income countries without seriously damaging developing-country trade. Therefore, as part of a comprehensive agreement on climate change, new WTO rules could be negotiated that would prohibit the extreme form of action while possibly allowing trade actions based on domestic carbon content as a safety valve.

Keywords: trade, trade policy, environment, climate change

JEL Classification: F13, F18, H23, Q56

Suggested Citation

Mattoo, Aaditya and Subramanian, Arvind and van der Mensbrugghe, Dominique and He, Jianwu, Reconciling Climate Change and Trade Policy (November 10, 2009). Center for Global Development Working Paper No. 189. Available at SSRN: https://ssrn.com/abstract=1516053 or http://dx.doi.org/10.2139/ssrn.1516053

Aaditya Mattoo (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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Arvind Subramanian

International Monetary Fund (IMF) ( email )

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Center for Global Development

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Dominique Van der Mensbrugghe

World Bank ( email )

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HOME PAGE: http://econ.worldbank.org/staff/dvandermensbrugghe

Jianwu He

World Bank

1818 H Street, NW
Washington, DC 20433
United States

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