Carbon Taxing Imports - Can the North Reduce Global Warming While Avoiding Negative Economic Implications for the South?

Abstract

Government action to address global warming has been very varied internationally and industries in the developed world, especially those which are energy intensive, are increasingly concerned about the potential negative impacts of abatement measures on their global competitiveness. Initially most concern was expressed in Europe. However, as the adoption of serious efforts to address global warming in the US appears to be inevitable, concerns are also increasing in the US and with them calls for action to avoid loss of competitiveness and 'carbon leakage'. A key tool discussed in this debate is the use of border tax adjustments (BTAs) - popularly referred to as 'carbon tariffs' - to address competitiveness impacts. This paper looks at the potential impacts for the South - specifically low income developing countries - of the implementation of BTAs. It finds that several countries are vulnerable to action by the large developed country markets. In the EU, the key countries likely to be affected are Niger, Mozambique and Tadjikistan, all of whom rely on Energy Intensive products for well over half of their exports to the EU. In the US market, there is significantly less trade with LICS in these sectors, but Liberia, Tadjikistan and Uzbekistan are highly dependent on EIIs in this market. It is likely that efforts will be made to avoid negative impacts on the poorest countries, however any effort to exclude all of the vulnerable countries cited would be illegal under present WTO rules. It thus seems inevitable that BTAs, if they are adopted, will have some negative impacts on certain LICS. These will need to be taken into account in development policy.