Market Based Instruments

Market Based Instruments

National Experiences in Environmental Sustainability

Critical Issues in Environmental Taxation series

Edited by Larry Kreiser, David Duff, Janet E. Milne and Hope Ashiabor

This detailed book explores how market based environmental strategies are used in various countries around the world. It investigates how successful sustainability strategies used by one country can be transferred and used successfully in other countries, with a minimum of new research and experimentation. Leading environmental taxation scholars discuss this question and analyse a set of key case studies.

Chapter 7: The extraterritorial impact of the EU and Australian carbon-restricting reforms

Juscelino F. Colares

Subjects: economics and finance, environmental economics, public finance, environment, environmental economics, environmental law, law - academic, environmental law, tax law and fiscal policy


When considering technological options in a world where restricting emissions is increasingly the policy response to climate change, firms must choose between lower present-cost/lower future-benefit carbon-friendly production and higher present-cost/higher future-benefit carbon-efficient production. This chapter argues that firms will increasingly favor the latter over time, whether they are based in carbon-restricting nations or whether they intend to continue selling goods and services in those markets. That is the case because one of the effects of carbon-restricting policies is the creation of a market price for carbon, which turns carbon into a factor of production, thus affecting firms’ cost-minimization strategies. This chapter explains in detail the economic dynamics that support this technological switch both at the firm and inter-firm levels in carbon-restricting countries and how this trend to carbon efficiency will extend to producers in carbon-friendly nations. The mere possibility that carbon-restricting governments might resort to adopting level-the-playing field measures, such as border carbon adjustments (‘BCAs’), increases regulatory uncertainty for carbon-friendly producers and, thus, steers their decisions toward more carbon-efficient production.

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