Climate, Trade, and International Interconnectivity

Oct 25, 2010

Considering the Foreign Trade Impacts of Domestic Climate Policies
RFF Feature
October 25, 2010

As nations craft domestic responses to climate change, questions emerge over whether their own energy-intensive industries will be able to compete with those of countries that don’t price carbon. From an environmental perspective, concerns exist about whether efforts to reduce domestic emissions will be counterbalanced by emissions from unregulated nations, a problem commonly known as leakage.

Responding to these issues, some policymakers have proposed including trade-related provisions to climate legislation, designed to address the viability of carbon-constrained domestic industries and ensure, to some extent, the environmental integrity of such policies. Developing countries, however, worry that such measures will unfairly target their energy-intensive industries with punitive trade barriers.

In The Global Effects of Subglobal Climate Policies, RFF Senior Fellow Carolyn Fischer and coauthors Christoph Bohringer and Knut Einar Rosendahl examine the interactions of subglobal climate policies and the global trading system.

According to the authors, subglobal climate policies undeniably reach beyond their respective borders. “Developed countries should understand that most developing nations do not actually gain economically from the former’s efforts to reduce greenhouse gas emissions. At the same time, developing countries should recognize that their sectors targeted specifically by antileakage policies do not necessarily lose, compared with a world without any climate policies.”