Air Trade: Can Trade Restrictions be Justified on Environmental Grounds? (The Economist)
Work by Senior Fellow Arvind Subramanian is mentioned in an Economist blog on incorporating carbon prices into trade.
CARBON markets look green around the gills. The price of carbon on Europe’s emissions-trading system, the world’s biggest, has slumped. Barack Obama’s hope of getting a cap-and-trade proposal through Congress seems as distant as ever. There is no sign of action in places like India and Brazil. But it is easy to forget how far carbon markets have come. They exist or are on their way in Europe, Australia, California, China and South Korea. One day, carbon prices will vary greatly between countries.
When they do, those with higher carbon prices will be at a competitive disadvantage because the cost of emitting carbon will be embodied in the overall price of goods, raising them relative to goods produced in countries with no or low carbon prices. A new study* by Aaditya Mattoo of the World Bank and Arvind Subramanian of the Centre for Global Development, a think-tank in Washington, DC, looks at how big this disadvantage might be. They reckon that, if rich countries were to impose unilateral restrictions upon themselves to reduce their carbon emissions in 2020 to 17% below what they had been in 2005, the measure would cut exports of energy-intensive manufactured goods by 12% in America, and boost US imports of those goods by 4%.
