IDEAS home Printed from https://ideas.repec.org/p/ags/pugtwp/333219.html
   My bibliography  Save this paper

Optimal Environmental Border Adjustments Under the General Agreement on Tariffs and Trade

Author

Listed:
  • Balistreri, Edward J.
  • Kaffine, Daniel
  • Yonezawa, Hidemichi

Abstract

A country choosing to adopt border carbon adjustments based on embodied emissions is motivated by both environmental and strategic incentives. We argue that the strategic component is inconsistent with commitments under the General Agreement on Tariffs and Trade (GATT). We extend the theory of border adjustments to neutralize the strategic incentive, and consider the remaining environmental incentive in a simpli_x000c_ed structure. The theory supports border adjustments on carbon content that are below the domestic carbon price, because price signals sent through border adjustments inadvertently encourage consumption of emissions intensive goods in unregulated regions. The theoretic intuition is supported in our applied numeric simulations. Countries imposing border adjustments at the domestic carbon price will be extracting rents from unregulated regions at the expense of effcient environmental policy and consistency with international trade law.

Suggested Citation

  • Balistreri, Edward J. & Kaffine, Daniel & Yonezawa, Hidemichi, 2020. "Optimal Environmental Border Adjustments Under the General Agreement on Tariffs and Trade," Conference papers 333219, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333219
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/333219/files/9681.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Joshua Elliott & Ian Foster & Samuel Kortum & Todd Munson & Fernando Pérez Cervantes & David Weisbach, 2010. "Trade and Carbon Taxes," American Economic Review, American Economic Association, vol. 100(2), pages 465-469, May.
    2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    3. Keen, Michael & Kotsogiannis, Christos, 2014. "Coordinating climate and trade policies: Pareto efficiency and the role of border tax adjustments," Journal of International Economics, Elsevier, vol. 94(1), pages 119-128.
    4. Michael A. Mehling & Harro van Asselt & Kasturi Das & Susanne Droege, 2018. "Beat protectionism and emissions at a stroke," Nature, Nature, vol. 559(7714), pages 321-324, July.
    5. Bruno Lanz & Thomas F Rutherford, 2016. "GTAPinGAMS: Multiregional and Small Open Economy Models," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(2), pages 1-77, December.
    6. Niven Winchester, 2012. "The Impact of Border Carbon Adjustments Under Alternative Producer Responses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(2), pages 354-359.
    7. Scott Barrett & Robert Stavins, 2003. "Increasing Participation and Compliance in International Climate Change Agreements," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 3(4), pages 349-376, December.
    8. Daniel Gros, 2009. "Global Welfare Implications of Carbon Border Taxes," CESifo Working Paper Series 2790, CESifo.
    9. James R. MARKUSEN, 2021. "International Externalities And Optimal Tax Structures," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 16, pages 341-355, World Scientific Publishing Co. Pte. Ltd..
    10. Henrik Horn & Petros C. Mavroidis, 2011. "To B(TA) or Not to B(TA)? On the Legality and Desirability of Border Tax Adjustments from a Trade Perspective," The World Economy, Wiley Blackwell, vol. 34(11), pages 1911-1937, November.
    11. Ludivine Tamiotti, 2011. "The legal interface between carbon border measures and trade rules," Climate Policy, Taylor & Francis Journals, vol. 11(5), pages 1202-1211, September.
    12. Hidemichi Yonezawa & Edward J. Balistreri & Daniel T. Kaffine, 2012. "The suboptimal nature of applying Pigouvian rates as border adjustments," Working Papers 2012-02, Colorado School of Mines, Division of Economics and Business.
    13. Michael Jakob & Jan Christoph Steckel & Ottmar Edenhofer, 2014. "Consumption- Versus Production-Based Emission Policies," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 297-318, October.
    14. Böhringer, Christoph & Balistreri, Edward J. & Rutherford, Thomas F., 2012. "The role of border carbon adjustment in unilateral climate policy: Overview of an Energy Modeling Forum study (EMF 29)," Energy Economics, Elsevier, vol. 34(S2), pages 97-110.
    15. Rodney D. Ludema & Ian Wooton, 1994. "Cross-Border Externalities and Trade Liberalization: The Strategic Control of Pollution," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 950-966, November.
    16. Leamer, Edward E, 1980. "The Leontief Paradox, Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 495-503, June.
    17. Böhringer, Christoph & Lange, Andreas & Rutherford, Thomas F., 2014. "Optimal emission pricing in the presence of international spillovers: Decomposing leakage and terms-of-trade motives," Journal of Public Economics, Elsevier, vol. 110(C), pages 101-111.
    18. Vandendorpe, Adolf L., 1972. "Optimal tax structures in a model with traded and non-traded goods," Journal of International Economics, Elsevier, vol. 2(3), pages 235-256, August.
    19. Krutilla, Kerry, 1991. "Environmental regulation in an open economy," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 127-142, March.
    20. Ferris, Michael C. & Munson, Todd S., 2000. "Complementarity problems in GAMS and the PATH solver," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 165-188, February.
    21. Edward J. Balistreri & Daniel T. Kaffine & Hidemichi Yonezawa, 2015. "Optimal environmental border adjustments under the General Agreement on Tariffs and Trade (Payne Institute Policy Brief)," Payne Institute Policy Briefs 2014-03, Colorado School of Mines, Division of Economics and Business.
    22. Böhringer, Christoph & Bye, Brita & Fæhn, Taran & Rosendahl, Knut Einar, 2017. "Targeted carbon tariffs: Export response, leakage and welfare," Resource and Energy Economics, Elsevier, vol. 50(C), pages 51-73.
    23. Carbone, Jared C. & Kerry Smith, V., 2013. "Valuing nature in a general equilibrium," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 72-89.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jakob, Michael, 2021. "Climate policy and international trade – A critical appraisal of the literature," Energy Policy, Elsevier, vol. 156(C).
    2. Böhringer, Christoph & Bye, Brita & Fæhn, Taran & Rosendahl, Knut Einar, 2017. "Targeted carbon tariffs: Export response, leakage and welfare," Resource and Energy Economics, Elsevier, vol. 50(C), pages 51-73.
    3. Christoph Böhringer & Knut Einar Rosendahl & Halvor Storrøsten, 2021. "Smart hedging against carbon leakage [An overview of the GTAP 9 data base]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(107), pages 439-484.
    4. Christoph Böhringer & Thomas F. Rutherford, 2017. "Paris after Trump: An Inconvenient Insight," CESifo Working Paper Series 6531, CESifo.
    5. Böhringer, Christoph & Rosendahl, Knut Einar & Storrøsten, Halvor Briseid, 2017. "Robust policies to mitigate carbon leakage," Journal of Public Economics, Elsevier, vol. 149(C), pages 35-46.
    6. Michael Jakob & Robert Marschinski & Michael Hübler, 2013. "Between a Rock and a Hard Place: A Trade-Theory Analysis of Leakage Under Production- and Consumption-Based Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(1), pages 47-72, September.
    7. Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2015. "Mitigating carbon leakage: Combining output-based rebating with a consumption tax," ZenTra Working Papers in Transnational Studies 54 / 2015, ZenTra - Center for Transnational Studies.
    8. Xiao Chen & Alan Woodland, 2013. "International trade and climate change," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 381-413, June.
    9. Böhringer, Christoph & Rutherford, Thomas F. & Schneider, Jan, 2021. "The incidence of CO2 emissions pricing under alternative international market responses," Energy Economics, Elsevier, vol. 101(C).
    10. Böhringer, Christoph & Bye, Brita & Fæhn, Taran & Rosendahl, Knut Einar, 2012. "Alternative designs for tariffs on embodied carbon: A global cost-effectiveness analysis," Energy Economics, Elsevier, vol. 34(S2), pages 143-153.
    11. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2018. "Embodied Carbon Tariffs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(1), pages 183-210, January.
    12. Christoph Boehringer & Thomas Rutherford & Jan Schneider, 2021. "The Incidence of CO2 Emissions Pricing Under Alternative International Market Responses A Computable General Equilibrium Analysis for Germany," Working Papers V-435-21, University of Oldenburg, Department of Economics, revised May 2021.
    13. Sakai, Marco & Barrett, John, 2016. "Border carbon adjustments: Addressing emissions embodied in trade," Energy Policy, Elsevier, vol. 92(C), pages 102-110.
    14. Christoph Böhringer, 2014. "Two Decades of European Climate Policy: A Critical Appraisal," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 1-17, January.
    15. Melanie Hecht & Wolfgang Peters, 2019. "Border Adjustments Supplementing A Cap And Trade System To Combat Climate Change," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 10(04), pages 1-21, November.
    16. Byeongho Lim & Kyoungseo Hong & Jooyoung Yoon & Jeong-In Chang & Inkyo Cheong, 2021. "Pitfalls of the EU’s Carbon Border Adjustment Mechanism," Energies, MDPI, vol. 14(21), pages 1-18, November.
    17. Noha Elboghdadly & Michael Finus, 2020. "Non-Cooperative Climate Policies among Asymmetric Countries: Production- versus Consumption-based Carbon Taxes," Graz Economics Papers 2020-16, University of Graz, Department of Economics.
    18. Madison Condon & Ada Ignaciuk, 2013. "Border Carbon Adjustment and International Trade: A Literature Review," OECD Trade and Environment Working Papers 2013/6, OECD Publishing.
    19. Copeland, Brian R., 2012. "International trade and green growth," Policy Research Working Paper Series 6235, The World Bank.
    20. Böhringer, Christoph & Rutherford, Thomas, 2017. "Paris After Trump: An Inconvenient Insight," Conference papers 332843, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

    More about this item

    Keywords

    Environmental Economics and Policy; International Relations/Trade;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:pugtwp:333219. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/gtpurus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.