Environmental Border Tax Adjustments and International Trade Law. Fostering Environmental Protection

Research Highlight 2018

Carbon border taxes: part of the solution to tackle climate change?

Climate change has been high on the media and political agenda this past year. This summer, the heatwave made the headlines. On October 8th, the Nobel Prize for economics was granted to Paul M. Romer and William D. Nordhaus, the latter for his research on climate economics. The same day, the UN Intergovernmental Panel on Climate Change (IPCC) issued a special report on global warming, drawing attention to the impact of world temperature exceeding 1.5°C above pre-industrial levels. In this report, the UN IPCC underlines the role of pricing policies on greenhouse gas (GHG) emissions in order to limit global warming. 

The book published by Alice Pirlot analyses environmental border tax adjustments, including carbon border tax adjustments. These taxes are among the instruments that could be used to put a price on GHG emissions. Proposals in favour of such taxes have been discussed both in Europe and the United States but they have not been made into law. In comparison with other policy instruments that usually put a price on GHG emissions released during production, carbon border tax adjustments would be imposed on domestic and imported products based on their carbon footprint.

The book clarifies the objectives that policy-makers can pursue by means of environmental border tax adjustments. It provides information on possible designs of such taxes, which are very similar to VAT and excise duties with a focus on the environmental impact of products. The book analyses the legal framework surrounding environmental border tax adjustments, in particular international trade law. The researcher concludes by arguing that environmental border tax adjustments can be implemented in a way that is not incompatible with the law of the World Trade Organization. Overall, the book draws attention to the potential role that environmental border tax adjustments could play in countries’ policy mix to limit global temperature rise below 1.5°C.