Taxing options for trade

Carbon-related tariffs may reduce global emissions, but the welfare losses would be high for emerging economies, such as China, Mexico and Brazil.

Credit: ©istockphoto/diego cervo

Adding a border tax or tariff to goods imported from countries without a strict emissions policy has been proposed as a way of levelling the economic playing field between countries with different commitments to greenhouse-gas reduction.

Using global trade data from 2004, Giles Atkinson from the London School of Economics and his colleagues traced the trade flows of the carbon embedded in goods — also known as virtual carbon — and estimated the economic impact of imposing a carbon tax on countries that export carbon-intensive products¹. Assuming a price of $50 per ton for carbon dioxide, introducing a border tax on countries that do not have mandatory emission reduction targets under the Kyoto Protocol — known as non-Annex B countries — could result in a tariff burden as high as 30% for the most carbon-intensive sectors, including metals, chemicals and petroleum.

Aside from concerns about the impact of a border tariff on exporters, the authors note that information on the carbon content of goods is imperfect and hard to obtain, which could lead to complex disputes in imposing them.