Goran Dominioni, Dan Esty, 22 April 2022

The EU and the US are considering proposals for border carbon adjustment mechanisms to curtail the risk of carbon leakage. This column argues that these mechanisms can better mitigate climate change and more likely comply with WTO law when designed to account for effective carbon prices in exporting countries instead of focusing on explicit carbon prices alone. While there are administrative challenges to crediting effective carbon prices, existing trade accounting methods (notably from anti-dumping and countervailing duty subsidy cases) provide ample experience and know-how to overcome these difficulties.

Cecilia Bellora, Lionel Fontagné, 26 March 2022

The proposed European Carbon Border Adjustment Mechanism seeks to curb carbon leakage, which undermines the EU’s ambitious goal of climate neutrality by 2050. This column explores whether the mechanism succeed in reducing carbon leakage, while at the same time restoring a level playing field for EU producers and minimising the likelihood of WTO panels or retaliation by trading partners. The authors argue that the mechanism will significantly curb European carbon leakages, but at a cost. EU member states will need at the very least to agree on how to end free allowances to be compatible with the WTO.

Christoph Böhringer, Andreas Lange, Thomas Rutherford, 06 May 2010

Will unilateral emissions cap-and-trade schemes result in carbon leakage and provide a cover for protectionist policies? This column argues that these risks are overstated. Moreover, large open economies such as the EU or the US cannot substantially reduce pollution costs through competing on emission-prices and a simple rule of uniform pricing is close to optimal.

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