Chapter 3: Border adjustment as it relates to climate policy
This chapter highlights issues related to carbon leakage caused by emissions reduction systems and discusses a range of possible policy tools to address carbon leakage concerns, including the use of border adjustment. The notion of carbon-related border adjustment, as elaborated in the different legislative proposals and political statements discussed in this chapter, appears to be broader than the traditional border tax adjustment concept used in international trade. As discussed in the previous chapter, based on the CBDR principle, only developed countries and countries in transition have so far committed themselves to quantified emissions reductions. It is likely that the new international climate regime emerging after 2015 will be built on the same principle, where developing countries will have no mandatory emissions reduction commitments, whereas developed countries will again have to take on concrete emissions reduction obligations. The unilateral introduction of carbon constraints creates unequal conditions of competition between domestic and foreign markets. This happens because foreign producers in countries with no, or lax, carbon legislation in place do not pay carbon charges and then go on to sell their products in the market of a country with carbon restrictions and in the markets of other countries tax-free. At the same time, domestic producers are obliged to bear emissions costs and are not compensated for these costs on exportation.
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