Reconciling Climate Change and Trade Policy

48 Pages Posted: 11 Dec 2009

See all articles by Arvind Subramanian

Arvind Subramanian

International Monetary Fund (IMF); Center for Global Development

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Dominique van der Mensbrugghe

World Bank

Jianwu He

World Bank

Multiple version iconThere are 3 versions of this paper

Date Written: December 10, 2009

Abstract

Th ere is growing clamor in industrial countries for additional border taxes on imports from countries with lower carbon prices. We confirm the findings of other research that unilateral emissions cuts by industrial countries will have minimal carbon leakage effects. However, output and exports of energy-intensive manufactures are projected to decline, potentially creating pressure for trade action. A key factor affecting the impact of any border taxes is whether they are based on the carbon content of imports or the carbon content of 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. Border tax adjustment based on the carbon content in domestic production would broadly address the competitiveness concerns of producers in high income countries and less seriously damage developing country trade.

Keywords: trade, trade policy, environment, climate change

JEL Classification: F13, F18, H23, Q56

Suggested Citation

Subramanian, Arvind and Mattoo, Aaditya and van der Mensbrugghe, Dominique and He, Jianwu, Reconciling Climate Change and Trade Policy (December 10, 2009). Peterson Institute for International Economics Working Paper No. 09-15. Available at SSRN: https://ssrn.com/abstract=1521657 or http://dx.doi.org/10.2139/ssrn.1521657

Arvind Subramanian (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Center for Global Development

2055 L St. NW
5th floor
Washington, DC 20036
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Aaditya Mattoo

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

1818 H Street, N.W.
Room MC 3-327
Washington, DC 20433
United States
202-458-8047 (Phone)
202-676-9810 (Fax)

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

Dominique Van der Mensbrugghe

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-0052 (Phone)
202-522-1159 (Fax)

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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