How to Stay Competitive in the World of Carbon Restrictions: Solutions for Developing Countries

The article explores a range of possible solutions for developing countries to maintain competitiveness of their exports in the world of carbon restrictions. The use of carbon-related border measures by developed countries may have serious trade implications for developing countries. Given the heavy reliance of developing economies on fossil fuels and energy-inefficient technologies, industrial products from developing countries commonly have high emissions contents. A requirement to surrender emission allowances, or to pay a carbon tax at the border, would significantly raise the price of carbon-intensive exports from developing countries, especially steel, aluminium, cement, chemicals and paper. This would undermine the competitiveness of developing countries’ exporters and could significantly reduce or even effectively ban their exports to developed countries. The article argues that preference should be given to proactive solutions to the possible loss of competitiveness. They include changes in technologies (including carbon capture and storage), adoption of energy-efficiency measures and a reorientation of a developing country’s economy from fossil fuel to renewables. The use of the UNFCCC forum for negotiations and the WTO dispute settlement mechanism might also be an option.