Coordinating Climate and Trade Policies: Pareto Efficiency and the Role of Border Tax Adjustments

December 7, 2012

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Michael Keen, and Christos Kotsogiannis. Coordinating Climate and Trade Policies: Pareto Efficiency and the Role of Border Tax Adjustments, (USA: International Monetary Fund, 2012) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper explores the role of trade instruments in globally efficient climate policies, focusing on the central issue of whether some form of border tax adjustment (BTA) is warranted when carbon prices differ internationally. It shows that tariff policy has a role in easing cross-country distributional concerns that can make non-uniform carbon pricing efficient and, more particularly, that Pareto-efficiency requires a form of BTA when carbon taxes in some countries are constrained, a special case being identified in which this has the simple structure envisaged in practical policy discusions. It also stresses—a point that has been overlooked in the policy debate—that the efficiency case for BTA depends critically on whether climate policies are pursued by carbon taxation or by cap-and-trade.

Subject: Carbon tax, Climate policy, Emissions trading, Environment, Tariffs, Taxes, Value-added tax

Keywords: Border tax adjustments, Cap-and-trade, Carbon tax, Climate policy, Emissions trading, Environmental taxation, Global, International trade, Pareto efficiency, Policy debate, Price elasticity, Producer price, Tariff policy, Tariff structure, Tariffs, Value-added tax, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/289
Stock No:

WPIEA2012289
ISBN:

9781475552942
ISSN:

1018-5941

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