Design, Experiences and Issues
Edited by Larry Kreiser, Mikael S. Andersen, Birgitte E. Olsen, Stefan Speck, Janet E. Milne and Hope Ashiabor
Chapter 7: Carbon tariffs and developing countries: the case for special and differential treatment
Economic instruments, including environmental taxes, have long been considered an effective and cost-efficient means of achieving lower carbon emissions. However, environmental taxes raise two prominent concerns: first, that they will lower international competitiveness for a taxing country’s exports and second that they will lead to ‘carbon leakage’, whereby producers will relocate to non-taxing countries. These concerns can be addressed, at least in part, by the imposition of border adjustment measures (BAMs), which create a more level playing field by imposing on imports from countries without a comparable environmental impost a charge (known as a ‘carbon tariff’) equivalent to the environmental tax imposed on domestic products; and by exempting exports from the tax. The prospect of carbon tariffs will raise concerns among countries without comparable carbon pricing mechanisms, whose exports will be the potential objects of such tariffs. Indeed, one of the objectives of carbon tariffs is to incentivize the introduction of carbon pricing regulation in non-taxing countries. Particularly concerned will be producers and governments from developing countries, whose economies could be especially challenged by any imposition of carbon tariffs on their products. The issues around carbon tariffs and developing countries have been brought into sharper focus by the recent United States–China agreement to limit carbon emissions.
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