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GTAP Resource #3864

"Border carbon adjustment and potential trade retaliation: an evaluation with MIRAGE-e"
by Fouré, Jean, Houssein Guimbard and Stéphanie Monjon

Carbon leakage risks have been examined seriously recently in the framework of the European Emission Trading Scheme (EU ETS). Since 2005, this system caps emissions of highly emissive European companies. But some of these companies are highly exposed to international competition. Several Member States, in particular France, have repeatedly proposed to impose a BCA to imports of the products covered by the EU ETS. However, as a trade measure, a BCA may be contested by a World Trade Organization (WTO) member under its dispute settlement mechanism. Even if several recent analyses (Ismer and Neuhoff, 2007; Pauwelyn, 2007; Eichenberg, 2010), including a recent report from WTO-UNEP (2009), conclude that such a measure may be WTO-compatible, the possibility of dispute settlement and trade retaliation remains serious. In 2010, the Indian Environment Minister Jairam Rames stated that “India [would] bring a WTO challenge against any “carbon taxes” that rich countries impose on Indian imports” (ICTSD, 2010).

The aim of the paper is to evaluate the efficiency of a border carbon adjustment (BCA) in complement to the EU ETS to limit the carbon leakage and its impact on the volume of production and trade flows of the sectors in which the trade measure is applied, but also of other sectors (within and outside the EU ETS).

A first scenario models an increasing constraint on greenhouse gas (GHG) emissions of the highly emissive industrial sectors in the EU up to 2025 based on the decision taken by European Parliament and Council in 2009 (EU, 2009). The scenario also integrates the carbon constraint on the aviation sector from 2012 in EU. The emission reductions applied in the other sectors and in the rest of the world are consistent with the pledges taken in the Copenhagen Accord (Delink et al., 2010). A second scenario assumes that EU’s main trade partners bring a WTO challenge against the BCA and apply some trade retaliation, modeled as an increase of custom duties, com...

Resource Details (Export Citation) GTAP Keywords
Category: 2012 Conference Paper
Status: Published
By/In: Presented at the 15th Annual Conference on Global Economic Analysis, Geneva, Switzerland
Date: 2012
Created: Fouré, J. (4/29/2012)
Updated: Fouré, J. (6/26/2012)
Visits: 2,524
- Trade and the environment
- Economic growth
- Asia (South-Central)

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