Can border carbon taxes fit into the global trade regime?
This Policy Brief highlights some weaknesses in the standard argumentation for BCAs. But there is an alternative argument for border carbon measures, based on the fact that countries expose each other to climate externalities.
One complement to domestic climate policies could be the regulation of carbon dioxide emissions arising during the production of imported products. Such ‘border carbon adjustments’ (BCAs) are said to have several benefits, but are also severely criticised. This Policy Brief highlights some weaknesses in the standard argumentation for BCAs. But there is an alternative argument for border carbon measures, based on the fact that countries expose each other to climate externalities. The reformulated argument is economically more convincing, and provides a more convincing justification for the extraterritorial feature of border carbon measures. However, there are also several important factors mitigating against the implementation of such measures, including the risk that these measures will be used for protectionism.
If BCAs are to gain international acceptance, they must be motivated by clear, economically-sound arguments, but the reasons normally put forward do not seem to persuade critics. For instance, the European Union still needs to convince the world about the appropriateness of the extraterritorial features of the extension of its emissions trading system to aviation. To gain international acceptance, an understanding is needed of the use and design of border carbon measures, perhaps under the auspices of the World Trade Organisation. It might also be preferable to renegotiate tariffs in the WTO for the most polluting goods, rather than to allow countries to impose unilateral border measures.