Climate Change and Trade: Taxing Carbon at the Border?

Abstract

This study analyses the economic and political consequences of introducing a tax on the carbon content of imported goods at EU borders and whether such a tax would be compatible with WTO rules. The major findings are: 1. A CO2 border tax or import tariff would increase global welfare; 2. Such a carbon import tariff can be made to be compatible with WTO rules; 3. There are no insurmountable practical obstacles to introducing such a tariff; 4. The equity concerns of the UNFCCC could be taken into account by rebating the proceeds of the tariff to those countries manifestly unable to shoulder the burden themselves.

Keywords: Tax, Carbon, EU, Tax On The Carbon, EU Borders, WTO, CO2, CO2 Border Tax, Global Welfare, UNFCCC