Edited by Mona Hymel, Larry Kreiser, Janet E. Milne and Hope Ashiabor
Chapter 2: Border adjustment with taxes or allowances to level the price of carbon
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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