Trade and Climate Change: The Challenges Ahead

67 Pages Posted: 22 Nov 2010

See all articles by Jaime de Melo

Jaime de Melo

University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR); World Bank

Nicole A. Mathys

University of Neuchatel - Faculty of Economics and Social Sciences; Federal Office for Spatial Development

Date Written: September 2010

Abstract

The outcome of the 15th conference of the Parties to the UNFCC showed a shift from a top-down approach with a collective target favoring environmental objectives to a bottom-up accord favoring political feasibility with no meaningful binding agreement in sight as the global climate regime and the global trade policy regime represented by the WTO appear to be on a collision course. Following a review of the alternative architectures for the next Climate Change Agreement, the paper outlines four areas in which trade will play a role: as a purveyor of technological transfer; as a mechanism to separate where abatement takes place from who bears the cots of abatement; as a participation mechanism; and as a way to address the pressures for border adjustments. Political-economy considerations are invoked to predict that a target system with a carbon credit system will be preferable to a carbon tax or to a portfolio system of treaties. A review of evidence on the extent of pollution haven effects suggests that these should be small under climate mitigation policies, especially if efforts are undertaken to raise the price of energy. A discussion of border measures to complement mitigation policies suggests that they are unlikely to be found compatible with the environmental exceptions allowed under article XX of the GATT. The review concludes that an umbrella agreement with leeway where much initial mitigation would first take place unilaterally as under the early days of the GATT might be the most promising way ahead while preserving an open World Trading System and environmental integrity.

Keywords: Climate Change, WTO

JEL Classification: F18, Q56

Suggested Citation

de Melo, Jaime and Mathys, Nicole Andréa, Trade and Climate Change: The Challenges Ahead (September 2010). CEPR Discussion Paper No. DP8032. Available at SSRN: https://ssrn.com/abstract=1711045

Jaime De Melo (Contact Author)

University of Geneva - Department of Political Economics ( email )

40, boulevard du Pont-d'Arve
Geneva 4, CH-1211
Switzerland
+41 22 705 8273 (Phone)
+41 22 705 8293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/demelo/Jaime.html

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Nicole Andréa Mathys

University of Neuchatel - Faculty of Economics and Social Sciences ( email )

Neuchatel, 2000
Switzerland

Federal Office for Spatial Development ( email )

Register to save articles to
your library

Register

Paper statistics

Downloads
8
Abstract Views
990
PlumX Metrics