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Trading Carbon : December - January 2011
32 BORDER CARBON ADJUSTMENTS The current state of UN climate change negotiations offers little hope for the conclusion of a comprehensive multilateral agreement to reduce greenhouse gas (GHG) emissions in the foreseeable future. In the meantime, several countries have moved ahead at the national and regional levels, designing and implementing strategies to reduce emissions. Some nations have put a price on carbon through emissions trading systems (ETS) or taxes to create an incentive for abatement. In light of this development, mitigation efforts and carbon costs are likely to differ between regions. Countries pricing carbon are concerned about their emissions- and trade-intensive industries. They fear these industries will suffer from distortions in competitiveness vis-a-vis counterparts in countries with lower or no carbon costs. Similarly, from an environmental perspective, countries with higher carbon prices are concerned about the associated risk of carbon leakage through the relocation of the affected production, and hence the related emissions. Carbon leakage would arguably undermine the effectiveness of the mitigation policy. Therefore, countries are interested in incorporating measures to minimise this risk. In an attempt to address carbon leakage, as well as competitiveness concerns, a number of countries are considering introducing measures at the border that would impose a tax on imports from countries with lower carbon costs. These measures, called border carbon adjustments (BCAs), could negatively affect trading partners by lowering their income derived from exports. In this regard, the potential impact of BCAs on developing countries deserves particular attention for two reasons. First, most developing countries are less likely to adopt similar climate policies and are consequently more likely to suffer the full br unt of a border tax. Second, for many countries, exports are an important driving force for economic development. Measures reducing this source of income could have adverse effects on their economic and, consequently, social development. Dec 2011/Jan 2012 www.pointcarbon.com Trade concerns INGRID JEGOU AND SONJA LUBECKI LOOK AT THE IMPACT OF POSSIBLE BORDER CARBON ADJUSTMENTS IN LIGHT OF DEVELOPING COUNTRIES' TRADE VULNERABILITIES* REUTERS/RUPAK DE CHOWDHURI