Activity 3(b) Work Package 2
Examining issues in carbon barriers to trade

Background

The nexus between trade and climate change is receiving much attention lately. Developed countries are bound by the Kyoto 2012 targets and competitiveness concerns in these countries, have led to proposals for tariff or border tax adjustments to offset any adverse impact of capping carbon emissions. This also has roots in the fear of leakage of carbon-intensive industries to developing (Annex II) countries. However, such adjustment measures can impose significant economic costs upon developing countries, which in turn might affect their mitigation and adaptation capabilities.

The recent Waxman-Markey bill introduced in the US Congress provides for trade sanctions against countries, which do not impose controls on carbon emissions, by levying tariffs on certain goods from those countries. Trade intensity will be a factor along with energy intensity in determining the sectors that may be eligible for such trade measures. There is a call for adopting similar measures in Europe as well. Such border adjustment measures are going to be felt by a larger number of industries in the developing countries. Under such a regime, some sectors and economies can be more vulnerable than others.

Imposing environment related trade restrictions has been discussed in economic and legal spheres. The World Trade Organization (WTO) allows member nations to adopt measures to protect the environment and human health and life as long as the measures comply with existing rules. However, the WTO so far has not come out with clear provisions on the much debated subject.

It would be interesting to know where developing countries stand. If climate-based or carbon-based trade measures become the order of the day, how will these countries be affected? It would be interesting to know the sectors that might be affected in select developing countries and how such challenges (if any) be overcome through actions and strategies at different levels.

Objective

The study will be undertaken with the objective of addressing trade issues in climate change mitigation and adaptation from an Asian perspective. The project will examine the issues in carbon barriers to trade and their implications for trade competitiveness of key developing countries of Asia particularly India and China as well as implications of such possible interventions on key socio-economic indicators and the countries’ ability in mitigating and adapting to climate change vulnerability.

Expected outcomes

The study will throw light particularly on the existing and potential carbon related trade barriers and the vulnerability of select sectors to such trade policies. The analytical findings along with stakeholders’ feedback from primary survey will help in designing possible sustainable interventions in the changing trade policy scenario.