On the effectiveness of carbon-motivated border tax adjustments

As governments consider commitments to reduce carbon emissions, an accompanying question is what adjustments are appropriate to counteract any competitive disadvantage to domestic producers resulting from such commitments, particularly in the European Union, the United States and other Organisation for Economic Co-operation and Development countries.1 Considering the widely diverging levels of commitments in the area of carbon reductions, many specialists consider that some form of remedy is reasonable in order to maintain the competitiveness of domestic industries. Current thinking in global environmental policy circles is that border tax adjustments (BTAs) could be one solution, and may be included in an agreement that might emerge from Copenhagen in 2009 as part of the post-Kyoto world/United Nations Framework Convention on Climate Change post-Bali process (see also Walsh and Whalley, 2008). This text is based on more extensive research2 and focuses only on the issue of effectiveness of BTAs in relation to policies on carbon emission reductions. This debate carries important lessons for developed as well as developing countries in the Asia-Pacific region.