Can border carbon taxes fit into the global trade regime?

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Can border carbon taxes fit into the global trade regime?

This Policy Brief highlights some weaknesses in the standard argumentation for BCAs. But there is an alternative argument for border carbon measures,

Publishing date: 09 December 2013
Authors: André Sapir Henrik Horn

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One complement to domestic climate policies could be the regulation of carbon dioxide emissions arising during the production of imported products. Such ‘border carbon adjustments’ (BCAs) are said to have several benefits, but are also severely criticised. This Policy Brief highlights some weaknesses in the standard argumentation for BCAs. But there is an alternative argument for border carbon measures, based on the fact that countries expose each other to climate externalities. The reformulated argument is economically more convincing, and provides a more convincing justification for the extraterritorial feature of border carbon measures. However, there are also several important factors mitigating against the implementation of such measures, including the risk that these measures will be used for protectionism.

If BCAs are to gain international acceptance, they must be motivated by clear, economically-sound arguments, but the reasons normally put forward do not seem to persuade critics. For instance, the European Union still needs to convince the world about the appropriateness of the extraterritorial features of the extension of its emissions trading system to aviation. To gain international acceptance, an understanding is needed of the use and design of border carbon measures, perhaps under the auspices of the World Trade Organisation. It might also be preferable to renegotiate tariffs in the WTO for the most polluting goods, rather than to allow countries to impose unilateral border measures.

About the authors

André Sapir

André Sapir, a Belgian citizen, is a Senior fellow at Bruegel. He is also University Professor at the Université libre de Bruxelles (ULB) and Research fellow of the London-based Centre for Economic Policy Research.

Between 1990 and 2004, he worked for the European Commission, first as Economic Advisor to the Director-General for Economic and Financial Affairs, and then as Principal Economic Advisor to President Prodi, also heading his Economic Advisory Group. In 2004, he published 'An Agenda for a Growing Europe', a report to the president of the Commission by a group of independent experts that is known as the Sapir report. After leaving the Commission, he first served as External Member of President Barroso’s Economic Advisory Group and then as Member of the General Board (and Chair of the Advisory Scientific Committee) of the European Systemic Risk Board based at the European Central Bank in Frankfurt.

André has written extensively on European integration, international trade and globalisation. He holds a PhD in economics from the Johns Hopkins University in Baltimore, where he worked under the supervision of Béla Balassa. He was elected Member of the Academia Europaea and of the Royal Academy of Belgium for Science and the Arts.
Henrik Horn

Henrik Horn is a former Non-Resident Senior Fellow of Bruegel. He joined Bruegel in October 2006. His research is mainly focused on economic aspects of trade law and competition law, and he is responsible for Bruegel's research on regional trade agreements.

He is a Senior Research Fellow at the Research Institute of Industrial Economics, Stockholm, and Chief Reporter for an American Law Institute project on the Principles of the World Trade Organisation (WTO) Agreement. Previously, he held positions as Professor of International Economics at Stockholm University, as a judge in the Swedish supreme court for competition law cases, and worked for four years at the Economic Research and Analysis Division of the WTO.