Yasuo Tanabe, 23 January 2022

In July 2021, the EU announced a Carbon Border Adjustment Mechanism aimed at avoiding carbon leakage from the EU and promoting emissions reductions worldwide. This column summarises and reflects on a recent conference on the topic held by the EU-Japan Centre for Industrial Cooperation. It discusses the mechanism’s proposed implementation schedule, consistency with WTO rules, and implications for EU–Japan trade relations. It highlights the important role Japan should play in the decarbonisation effort, especially by harnessing its strengths in technology and innovation.

Avinash Persaud, 02 November 2021

To meet the Paris agreement, the world would have to eliminate 53.5 billion metric tonnes of carbon dioxide each year for the next 30 years. This column proposes a plan to meet the costs of this in an equitable way. Countries that contribute most to the stock of GHGs could issue an instrument that gives investors in projects anywhere in the world that reduce emissions the right to borrow from them at their overnight interest rates – which are currently near zero – and to roll over this borrowing for as long as the project delivers some minimum rate of reduction in emissions per dollar invested. Luckily, such an instrument already exists in the form of the IMF’s Special Drawing Rights.

Söhnke Bartram, Kewei Hou, Sehoon Kim, 03 May 2021

How effective are climate change policies, and what are the important considerations to ensure they are effective? This column shows that firms respond to climate change policies with regulatory arbitrage so that localised policies aimed at mitigating climate risk can have unintended consequences. Studying the impact of the California cap-and-trade programme, it shows that firms without financial constraints do not reduce their emissions in response to the policy. In contrast, financially constrained firms shift emissions and output from California to other states. In fact, contrary to the policy objective, these firms increase their total emissions after the cap-and-trade rule.

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