WASHINGTON—Economists have long held a consensus view that the best way to reduce the greenhouse gas emissions that contribute to climate change is to put a global price on those emissions. Yet, as of 2015, only 12 percent of global emissions were included in a carbon pricing scheme and, of those, the average price was $8 per ton, well below the $40-per-ton range put forward by the US Environmental Protection Agency. Globally, policies that subsidize green “goods” (such as renewable energy) are much more popular than policies that impose a cost on “bads” (such as carbon taxes). However, World Trade Organization (WTO) agreements place important limits on subsidies to avoid protectionism.
Does the WTO need to consider exceptions for subsidies directed toward green goods that may have transboundary environmental benefits, such as combating global climate change? That is among the central questions explored by Resources for the Future (RFF) Senior Fellow Carolyn Fischer in two new papers posted today on key aspects of current international trade and climate policies.
In Strategic Subsidies for Green Goods, Fischer examines the national incentives and global rationales for offering production and consumption subsidies for environmentally friendly goods. In turn, she evaluates the role of multiple market failures, including the market power enjoyed by firms in a new clean-tech industry, scale economies related to a growing and innovating industry, and the underpricing of environmental damages, particularly in foreign markets.
In Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance, Fischer considers the problem when green industrial policy is partly driven by special-interest lobbying, rather than just addressing market failures. Whereas WTO restrictions can be helpful for global trade in brown goods, looser subsidy rules can be beneficial for green goods, as proponents of domestic clean-tech manufacturers then facilitate emissions reductions abroad.
Read the full discussion papers: