Climate Change and Trade Policy: From Mutual Destruction to Mutual Support

35 Pages Posted: 20 Apr 2016

See all articles by Patrick A. Messerlin

Patrick A. Messerlin

Groupe d'Economie Mondiale at Sciences Po (GEM Paris)

Date Written: July 1, 2010

Abstract

Contrary to what is still often believed, the climate and trade communities have a lot in common: a common problem (a global "public good" ), common foes (vested interests using protection for slowing down climate change policies), and common friends (firms delivering goods, services, and equipment that are both cleaner and cheaper). They have thus many reasons to buttress each other. The climate community would enormously benefit from adopting the principle of "national treatment," which would legitimize and discipline the use of carbon border tax adjustment and the principle of "most-favored nation," which would ban carbon tariffs. The main effect of this would be to fuel a dual world economy of clean countries trading between themselves and dirty countries trading between themselves at a great cost for climate change. And the trade community would enormously benefit from a climate community capable of designing instruments that would support the adjustment efforts to be made by carbon-intensive firms much better than instruments such as antidumping or safeguards, which have proved to be ineffective and perverse. That said, implementing these principles will be difficult. The paper focuses on two key problems. First, the way carbon border taxes are defined has a huge impact on the joint outcome from climate change, trade, and development perspectives. Second, the multilateral climate change regime could easily become too complex to be manageable. Focusing on carbon-intensive sectors and building "clusters" of production processes considered as having "like carbon-intensity" are the two main ways for keeping the regime manageable. Developing them in a multilateral framework would make them more transparent and unbiased.

Keywords: Climate Change Mitigation and Green House Gases, Climate Change Economics, Emerging Markets, Carbon Policy and Trading, Debt Markets

Suggested Citation

Messerlin, Patrick A., Climate Change and Trade Policy: From Mutual Destruction to Mutual Support (July 1, 2010). World Bank Policy Research Working Paper No. 5378, Available at SSRN: https://ssrn.com/abstract=1649253

Patrick A. Messerlin (Contact Author)

Groupe d'Economie Mondiale at Sciences Po (GEM Paris) ( email )

197 Boulevard Saint Germain
197 Bd St Germain Paris 75007, 75007
France

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