Reconciling Trade and Climate
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Reconciling Trade and Climate

How the WTO Can Help Address Climate Change

Tracey Epps and Andrew Green

This timely book addresses the interaction between policies addressing climate change and the rules of the WTO. The authors expertly examine the law and economics behind the application of trade rules in the area of climate, including the implications of WTO rules for domestic climate measures, the unilateral use of trade measures to attempt to force other countries to take climate action, and the role of trade measures in multilateral climate agreements. The book argues that while there is a possibility of conflict between international trade rules and progress on climate change, it need not be the case. Thus the major focus is on the ways in which trade measures can aid in addressing climate change.
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Chapter 8: Border Tax Adjustments

Tracey Epps and Andrew Green


Border tax adjustments (BTAs) are a controversial area of overlap between international trade rules and climate policy. Governments in (mostly developed) countries proposing to price carbon through regulations or taxes have faced significant opposition from industries concerned that they will suffer a loss of competitiveness vis-à-vis industries in other (mostly developing) countries that do not face the costs associated with such measures.1 A related concern is that of ‘leakage’, whereby increased production costs lead industries to shift their operations from developed to developing countries with less stringent emission practices. Such leakage, it is argued, will have a negative impact on the competitiveness of developed country economies and will undermine the environmental integrity of a country’s environmental policy due to the resulting increase in emissions outside the country.2 One possible response to these concerns is to impose border tax adjustments (BTAs) on imports from countries that have not comparably offset the GHG emissions associated with a good’s production.3 Alternatively, taxes may be remitted or exempted on exports. BTAs targeted in this manner will help to secure the international competitiveness of local industry and prevent leakage. In principle, BTAs may be designed so as to be compatible with WTO rules. The potential benefit of BTAs lies in the hope that, if competitiveness can be secured and leakage minimized, the path to implementing regulations or taxes will be much smoother. However, the very significant downside is that their use may undermine climate change In Australia, for example, climate change legislation was rejected...

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