Carbon Footprints, Traded Emissions and Carbon-Price Cooperation Equity

Existing gaps between territorial inventories of CO2 emissions and carbon footprints resulting from the final domestic demands of countries highlight the need to reduce imported emissions in developed countries. Generalized carbon border pricing would help but it requires avoiding the risk of its use as a trade barrier. However, such an import tax is not the unique possible approach and it is not a substitute for enhanced climate cooperation. In addition to the advantages usually put forward in terms of efficiency and mechanism design, the setting of a common carbon price, by the means of national taxes or a cap and trade mechanism, would present a threefold interest in this context: of discarding the objections of trade distortions against climate policies; of regulating imported emissions and internal emissions with the same level of ambition; and of acting both on the use of products as well as on their processes. Footprint taxation is then unnecessary, except with non-participants. But a Green Fund is needed for fair sharing of the burden of the efforts. Moreover, its rules must be adapted when integrating trade-related emissions, which has not been pointed out so far in the debates on Article 6 of the Paris Agreement. Corresponding conditions are specified here and it is underlined that this approach has also the advantage having to deal only with the net distributive effects involving trade in carbon.