Chapter 7: The border adjustments of emissions trading schemes
Climate change and the challenges associated with it are global issues. For this reason the only appropriate response is a global reaction. This commonly held belief has spawned a significant volume of commentary that supports the use of the ‘destination principle’ of taxation. This principle requires that, irrespective of where a commodity is produced, it should be taxed in the country where it is consumed. In essence, if the destination principle is applied to emissions trading schemes, then a regulatory framework will include a border tax adjustment to impose costs on imported products for their associated greenhouse gas (GHG) emissions. A border tax adjustment would also include a refund of any charges incurred on products that are exported. It is possible to endorse the use of this method on the basis that countries that refuse to implement emissions policies will face charges if they export products to a country with a border tax adjustment. This means an argument exists that a border tax adjustment is a favourable alternative to free allocation of allowances within emissions trading schemes to address competitiveness concerns faced by domestic entities. From an environmental perspective, the preference for a border tax adjustment arises from the possibility of casting a wider emissions net. Border tax adjustments implemented alongside environmental taxes and charges is not a new concept in international trade.
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