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Carbon-related border tax adjustment: mitigating climate change or restricting international trade?

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  • KAUFMANN, CHRISTINE
  • WEBER, ROLF H.

Abstract

Border tax adjustments in the form of carbon taxes on products from countries with lax environmental production standards or in the form of a required participation in an emissions allowances' trading system have become a heavily debated issue under WTO law. Such an adjustment might be permissible if energy taxes as indirect taxes are applied on inputs during the production process. Compliance with the Most Favoured Nation principle has less practical importance than the not-yet settled likeness discussion under the National Treatment principle. Consequently, since the compatibility of carbon-related border tax adjustment measures is partly contested, potential justifications such as the conservation of exhaustible national resources or the protection of health (Art. XX GATT) become relevant. The application of the necessity and proportionality test requires that carbon measures are tailored so as to substantially contribute to the achievement of environmental objectives and do not create any arbitrary or unjustified discrimination.

Suggested Citation

  • Kaufmann, Christine & Weber, Rolf H., 2011. "Carbon-related border tax adjustment: mitigating climate change or restricting international trade?," World Trade Review, Cambridge University Press, vol. 10(4), pages 497-525, October.
    • Handle: RePEc:cup:wotrrv:v:10:y:2011:i:04:p:497-525_00
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    Cited by:

    1. Gary D. Libecap, 2014. "Addressing Global Environmental Externalities: Transaction Costs Considerations," Journal of Economic Literature, American Economic Association, vol. 52(2), pages 424-479, June.
    2. Jingzhi Zhu & Yuhuan Zhao & Lu Zheng, 2024. "The Impact of the EU Carbon Border Adjustment Mechanism on China’s Exports to the EU," Energies, MDPI, vol. 17(2), pages 1-18, January.
    3. Rolf Weber, 2015. "Border Tax adjustment – legal perspective," Climatic Change, Springer, vol. 133(3), pages 407-417, December.
    4. Overland, Indra & Sabyrbekov, Rahat, 2022. "Know your opponent: Which countries might fight the European carbon border adjustment mechanism?," Energy Policy, Elsevier, vol. 169(C).
    5. Gary D. Libecap, 2013. "Addressing Global Environmental Externalities: Transaction Costs Considerations," NBER Working Papers 19501, National Bureau of Economic Research, Inc.
    6. Holzer, Kateryna & Karapinar, Baris, 2012. "Legal Implications of the Use of Export Taxes in Addressing Carbon Leakage: Competing Border Adjustment Measures," Papers 215, World Trade Institute.
    7. Thom Brooks, 2015. "Climate change justice through taxation?," Climatic Change, Springer, vol. 133(3), pages 419-426, December.
    8. Sakai, Marco & Barrett, John, 2016. "Border carbon adjustments: Addressing emissions embodied in trade," Energy Policy, Elsevier, vol. 92(C), pages 102-110.
    9. Simola, Heli, 2020. "CO2 emissions embodied in EU-China trade and carbon border tax," BOFIT Policy Briefs 4/2020, Bank of Finland Institute for Emerging Economies (BOFIT).

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