Potential for Tariffs as Climate Change Mitigation: Legal and Economic Analysis

by Sam Peterson

There exist many approaches to solving the problem of climate change, which generally can be delineated in one of two categories: adaptation and mitigation. Adaptive policies include efforts to change human behavior to be compatible with the evolving global climate. Mitigation techniques result from more stringent policies. Both carbon dioxide emission caps and legislation against use of fossil fuels are environmental approaches to mitigation policy. There also exist economic mitigation policies which, by their nature, utilize market forces to dissuade continued use of products harmful to the environment. Cottier (2014) examined the effects imposition of tariffs might have on decreased use of environmentally unfriendly goods and services. They conclude, through use of elasticity measurements, that multilateral action would be effective for pursuing tariff policy, which would lead to an “average 1.4% net reduction in carbon-intensive imports from a 5% increase in tariffs.” The paper examines the World Trade Organization (WTO) legislation surrounding tariffs and concludes that countries can act unilaterally to increase tariffs or act as a group.

Tariffs, taxes on goods traded internationally, have long been used as a defense mechanism for growing and established economies to protect their industries from being undercut by their international counterparts who can produce goods at a lower cost. These protectionist policies are outlined by Cottier, who argues these tariffs “cannot be considered as a protectionist measure if the country is a member of an international climate change mitigation agreement.” This is because while tariffs would protect domestic industries’ goods, climate change is a legitimate environmental concern that must be acted upon multilaterally. Countries that are members of international climate change mitigation panels have reasonable cause and motivation to act as a group to raise prices on carbon-intensive goods.

A study examining most carbon intensive goods (paper, rubber, glass, plastics, iron & steel, cement, and basic chemicals) and the countries with the highest volumes of exports and imports (Australia, Canada, EU, Iceland, Japan, New Zealand, Norway, Switzerland, Argentina, Brazil, Chile, China, India, Indonesia, Israel, Mexico, the Philippines, Russia, South Africa, South Korea, Thailand, Turkey and the USA) indicates average tariffs on carbon-intensive goods are less than 1%. Using demand elasticity measures in these countries, the researchers conclude that raising tariffs by 5% on these carbon-intensive products would lead to a 1.4% reduction in use of these goods, a sizable decrease. This finding may prove extremely important if other mitigation strategies prove ineffective. Though many consumers may not participate in other mitigation strategies, when prices rise on imported goods, basic economic analysis tells us consumption of those goods will decrease, helping climate change in an economic way.

Cottier, T. (2014). “The Potential of Tariff Policy for Climate Change Mitigation:

Legal and Economic Analysis.” Journal of World Trade 48(5): 1007-1038.

 

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