Innovation Addressing Climate Change Challenges
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Innovation Addressing Climate Change Challenges

Market-Based Perspectives

Edited by Mona Hymel, Larry Kreiser, Janet E. Milne and Hope Ashiabor

Although the world faces many environmental challenges, climate change continues to demand attention. This timely book explores ways in which market-based instruments and complementary policies can help countries meet their climate change goals. The chapters explore carbon pricing and other tax and non-tax measures, offering useful market-based perspectives that can help inform the many climate policy decisions that lie ahead.
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Chapter 2: Border adjustment with taxes or allowances to level the price of carbon

Mikael Skou Andersen

Abstract

At the initiative of the World Bank and IMF an international coalition on carbon pricing was established in tandem with the Paris Agreement. Over the past five years, the share of global CO2 emissions subject to carbon pricing via either taxes or allowances has tripled, from 4 to 12 per cent. In anticipation of a widening gap between countries, the scope for border adjustments relative to carbon pricing deserves more attention. Border adjustments would require pricing of imports for their associated emissions to the same level as domestic goods, while exports to non-price countries may become eligible for refunds. Trade agreements under the WTO allow for such adjustment under its exemption clause provided countries do not agree to other corrective measures. As a highly sensitive measure, not only the complex technical and legal questions deserve attention, but how to make the best diplomacy of border adjustments requires careful consideration too.

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