Analyses | 16 February 2009

The economic and environmental effects of border tax adjustments for climate change policy

For the foreseeable future, climate change policy will be considerably more stringent in some countries than in others. In high-cost countries, there will be political pressure to impose border adjustments, or 'green tariffs', on imports from countries with little or no climate policy and low energy costs. Warwick McKibbin , Peter J. Wilcoxen

  • Warwick McKibbin
  • Peter J. Wilcoxen

For the foreseeable future, climate change policy will be considerably more stringent in some countries than in others. In high-cost countries, there will be political pressure to impose border adjustments, or 'green tariffs', on imports from countries with little or no climate policy and low energy costs. Warwick McKibbin , Peter J. Wilcoxen

  • Warwick McKibbin
  • Peter J. Wilcoxen
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Executive Summary

In this paper, the authors estimate how large such border tax adjustment tariffs would be in practice, and then examine their economic and environmental effects using G-Cubed, a detailed multi-sector, multi-country model of the world economy. They find that the tariffs would be small on most traded goods, would reduce leakage of emissions reduction very modestly, and would do little to protect import-competing industries. They conclude that the benefits produced by border adjustments would be too small to justify their administrative complexity or their deleterious effects on international trade.