The Economic and Environmental Effects of Border Tax Adjustments for Climate Policy
|Author:||Peter Wilcoxen with Warwick J. McKibbin|
|Publication:||Lael Brainerd and Isaac Sorkin, (eds), Climate Change, Trade and Competitiveness, The Brookings Institution, pp. 1-34, 2009.|
For the foreseeable future, climate change policy will be considerably more stringent in some countries than in others. Differences in climate policy will lead to differences in energy costs, and to concerns about competitive advantage. In high-cost countries, there will be political pressure to impose border adjustments on imports from countries with little or no climate policy and low energy costs. In this paper, authors estimate how large such tariffs would be in practice, and then examine their economic and environmental effects using G-Cubed, a detailed multi-sector, multi-country model of the world economy. Findings show that taxes would be small on most traded goods, would reduce leakage of emissions reduction very modestly, and would do little to protect import-competing industries. The benefits produced by border adjustments would be too small to justify their administrative complexity or their deleterious effects on international trade.