Climate Change and International Trade
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Climate Change and International Trade

Rafael Leal-Arcas

Rafael Leal-Arcas expertly examines the interface of climate change mitigation and international trade law with a view to addressing the question: How can we make best use of the international trading system experience to aim at a global climate change agreement?
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Chapter 9: Recommendations

Rafael Leal-Arcas


Given the lack of agreement at a global level on how to best tackle climate change mitigation, below are some recommendations for future international environmental fora: 1. Environmental taxes versus cap-and-trade. Climate change is the result of the largest market failure the world has ever seen: the prices of goods and services do not reflect the true costs associated with the impacts of GHG emissions that would result from climate change. Future effective policies must address market failures by creating a price on emissions (in other words, a carbon price), which can be created through a carbon tax or through a cap-and-trade system. Nevertheless, a global carbon price seems politically unrealistic at the moment. Environmental taxes are very common in the EU and very unpopular in the U.S. The idea is to penalize bad environmental performers by placing higher taxes on those actors whose GHG emissions are high, and to give credit to good environmental performers in order to promote environmentally friendly behavior and create an incentive for alternative power generation from wind, sun, and water. The counterargument is that hydropower as well as wind and geothermal energy are clean but naturally limited.

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