Conference Agenda

Carbon taxes have recently emerged as a common response to the dealing with challenges of climate change. Products with a higher carbon content or footprint necessitate a higher rate of taxation than those with lower carbon levels. However, the rules of the World Trade Organization (WTO) for international trade are based on non-discrimination, as carbon pricing of foreign produced goods can be seen as a form of protectionism. We provide a formal analysis of how domestic carbon pricing would interact with both import tariffs and border adjustment taxes (BATs) for carbon, as well as how free trade agreements affect external tariffs and carbon pricing (at and behind the border). We also examine how carbon pricing shapes the welfare gains and composition of these trade agreements. To examine these relationships, we use competing exporters framework and develop a model of multiple asymmetric countries which have comparative advantages in the goods of different carbon intensities. We allow countries to be active in domestic carbon taxes (taxes on the domestic producers of carbon-intensive goods), non-discriminatory international tariffs, and potentially “discriminatory” border adjustment carbon taxes.