Trade in the balance: reconciling trade and climate policy: report of the Working Group on Trade, Investment, and Climate Policy

This repository item contains a report published by the Working Group on Trade, Investment, and Climate Policy at The Frederick S. Pardee Center for the Study of the Longer-Range Future at Boston University, and the Global Economic Governance Initiative at Boston University.This report outlines the general tensions between the trade and investment regime and climate policy, and outlines a framework toward making trade and investment rules more climate friendly. Members of the working group have contributed short pieces addressing a range of issues related to the intersection of trade and climate policy. The first two are by natural scientists. Anthony Janetos discusses the need to address the effects of international trade on efforts to limit the increase in global annual temperature to no more than 2oC over preindustrial levels. James J. Corbett examines the failure of the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) to adequately address the environmental implications of shipping and maritime transport. The next two pieces are by economists who examine economic aspects of the trade-climate linkage. Irene Monasterolo and Marco Raberto discuss the potential impacts of including fossil fuel subsidies reduction under the TTIP. Frank Ackerman explores the economic costs of efforts to promote convergence of regulatory standards between the United States and the European Union under the TTIP. The following two contributions are by legal scholars. Brooke Güven and Lise Johnson explore the potential for international investment treaties to redirect investment flows to support climate change mitigation and adaptation, particularly with regard to China and India. Matt Porterfield provides an overview of the ways in which both existing and proposed trade and investment agreements could have either “climate positive” or “climate negative” effects on mitigation policies. The final article is by Tao Hu, a former WTO trade and environment expert advisor for China and currently at the World Wildlife Fund, arguing that the definition of environmental goods and services’ under the WTO negotiations needs to be expanded to better incorporate climate change

The Impact on U.S. Industries of Carbon Prices with Output-Based Rebates over Multiple Time Frames

The effects of a carbon price on U.S. industries are likely to change over time as firms and customers gradually adjust to new prices. The effects will also depend on the number of countries implementing the policy as well as offsetting policies to compensate losers. We examine the effects of a $15/ton CO2 price, including Waxman-Markey-type allocations to vulnerable industries, over four time horizons -- the very short-, short-, medium-, and long-runs -- distinguished by the ability of firms to raise output prices, change their input mix, and reallocate capital. We find that if firms cannot pass on higher costs, the loss in profits in a number of industries will indeed be large. When output prices can rise to reflect higher energy costs, the reduction in output and profits is substantially smaller. Over the medium- and long-terms, however, when more adjustments occur, the impact on output is more varied due to general equilibrium effects. The use of the H.R. 2454 rebates can substantially offset the output losses over all four time frames considered. We also consider competitiveness and leakage effects—changes in trade flows and changes in emissions in the rest of the world. We examine two measures of leakage: “trade-related” leakage that accounts for both the increased volume of net imports into the U.S. as well as the higher carbon intensity of these imports, and a broader leakage measure that includes the effect of increased fossil fuel consumption in countries not undertaking a carbon-pricing policy.carbon price, competitiveness, input-output analysis, output-based allocations, carbon leakage

Setting the NAFTA Agenda on Climate Change

After years of inaction, the three partners in the North American Free Trade Agreement (NAFTA)--Canada, Mexico, and the United States--now recognize the imperative to start the long-term process of substantially reducing greenhouse gas (GHG) emissions. The American Climate and Energy Security Act (ACESA) passed by the US House of Representatives in June 2009 cuts emissions, sets new standards for the use of renewable energy sources, and provides support to ease the transition to a low-carbon economy and to mitigate concerns about trade competitiveness of carbon-intensive industries and increased energy costs to consumers. The policy brief assesses the implications of the ACESA for North American trade and investment, particularly the free distribution of emissions permits, the allocation of revenues generated by the limited auctioning of emissions permits, the impact of renewable portfolio standards on US-Canada electricity trade, and the international offset provisions (that could be available to support Mexican policies seeking to cut GHG emissions in half by 2050). In light of ACESA's trade implications, the authors offer a pragmatic NAFTA agenda for near-term action on climate change issues. First, the Commission for Environmental Cooperation should be used as a clearinghouse for climate change-related data. Second, Canada and the United States should standardize definitions of renewable energy and coordinate their policies. Third, NAFTA members should commit not to impose border measures to address competitiveness concerns arising from new climate change policies (i.e., a temporary "peace clause") until a framework for such measures is developed under the WTO. Fourth, NAFTA members should study options for coordinating or integrating the evolving carbon regimes in each country. Fifth, NAFTA partners should establish a "safe harbor" to shield climate change taxes and regulations from claims under the indirect takings provisions of NAFTA Chapter 11. Finally, capacity building in Mexico will be essential to North American coordination on climate change. The North American Development Bank should be used to provide finance and technical assistance for energy-saving and pollution control projects in Mexico in support of its ambitious climate change policies. North American cooperation could serve as a model for how developed and developing countries can mutually benefit from an international climate change agreement.

Trade in the balance: reconciling trade and climate policy: report of the Working Group on Trade, Investment, and Climate Policy

This repository item contains a report published by the Working Group on Trade, Investment, and Climate Policy at The Frederick S. Pardee Center for the Study of the Longer-Range Future at Boston University, and the Global Economic Governance Initiative at Boston University.This report outlines the general tensions between the trade and investment regime and climate policy, and outlines a framework toward making trade and investment rules more climate friendly. Members of the working group have contributed short pieces addressing a range of issues related to the intersection of trade and climate policy. The first two are by natural scientists. Anthony Janetos discusses the need to address the effects of international trade on efforts to limit the increase in global annual temperature to no more than 2oC over preindustrial levels. James J. Corbett examines the failure of the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) to adequately address the environmental implications of shipping and maritime transport. The next two pieces are by economists who examine economic aspects of the trade-climate linkage. Irene Monasterolo and Marco Raberto discuss the potential impacts of including fossil fuel subsidies reduction under the TTIP. Frank Ackerman explores the economic costs of efforts to promote convergence of regulatory standards between the United States and the European Union under the TTIP. The following two contributions are by legal scholars. Brooke Güven and Lise Johnson explore the potential for international investment treaties to redirect investment flows to support climate change mitigation and adaptation, particularly with regard to China and India. Matt Porterfield provides an overview of the ways in which both existing and proposed trade and investment agreements could have either “climate positive” or “climate negative” effects on mitigation policies. The final article is by Tao Hu, a former WTO trade and environment expert advisor for China and currently at the World Wildlife Fund, arguing that the definition of environmental goods and services’ under the WTO negotiations needs to be expanded to better incorporate climate change

Carbon Emission Policies in Key Economies

The Australian Government asked the Productivity Commission to undertake a study on the ‘effective’ carbon prices that result from emissions and energy reduction policies in Australia and other key economies (the UK, USA, Germany, New Zealand, China, India, Japan and South Korea). The Commissions research report, released 9 June 2011, provides a stocktake of the large number of policy measures in the electricity generation and road transport sectors of the countries studied. And it provides estimates of the burdens associated with these policies in each country and the abatement achieved. While the results are based on a robust methodology, data limitations have meant that some estimates could only be indicative. More than 1000 carbon policy measures were identified in the nine countries studied, ranging from (limited) emissions trading schemes to policies that support particular types of abatement technology. While these disparate measures cannot be expressed as an equivalent single price on greenhouse gas emissions, all policies impose costs that someone must pay. The Commission has interpreted ‘effective’ carbon prices broadly to mean the cost of reducing greenhouse gas emissions — the ‘price’ of abatement achieved by particular policies. The estimated cost per unit of abatement achieved varied widely, both across programs within each country and in aggregate across countries. The relative cost effectiveness of price-based approaches is illustrated for Australia by stylised modelling that suggests that the abatement from existing policies for electricity could have been achieved at a fraction of the cost. The estimated price effects of supply-side policies have generally been modest, other than for electricity in Germany and the UK. Such price uplifts are of some relevance to assessing carbon leakage and competitiveness impacts, but are very preliminary and substantially more information would be required.carbon pricing; cost abatement; greenhouse gas emissions; abatement technology; carbon policy; energy reduction policy; emissions trading scheme; carbon leakage

Fiscal implications of climate change

This paper provides a primer on the fiscal implications of climate change, in particular the policies for responding to it. Many of the complicated challenges that arise in limiting climate change (through greenhouse gas emissions mitigation), and in dealing with the effects that remain (through adaptation to climate change impacts), are of a fiscal nature. While mitigation has the potential to raise substantial public revenue (through charges on greenhouse gas emissions), adaptation largely leads to fiscal outlays. Policies may unduly favor public spending (on technological solutions to limit emissions, and on adaptation), over policies that lead to more public revenue being raised (emissions charges). The pervasive uncertainties that surround climate change make the design of proper policy responses even more complex. This applies especially to policies for mitigation of emissions, since agreement on and international enforcement of cooperative abatement policies are exceedingly difficult to achieve, and there is as yet no common view on how to compare nearer-term costs of mitigation to longer-term benefits.Climate Change Mitigation and Green House Gases,Climate Change Economics,Carbon Policy and Trading,Energy Production and Transportation,Environment and Energy Efficiency

Political economy of policy reform in Turkey in the 1980s

Turkey's adjustment experience was a tremendous success in terms of structurally reorienting the economy. The share of output for export rose from 5 percent in 1979 to 23 percent in 1989, and real output roughly doubled. The financial markets opened and have developed depth and sophistication. The program failed to reduce fiscal deficits, inflation, income inequality, and the size of the inefficient public enterprise sector, but the transformation of trade and finance fundamentally altered the context of the problems, changing their effects on the private sector and changing the government's options for dealing with them. The first phase of economic adjustment was sustained, although not initiated, in an authoritarian context, but the Turks restored democracy when the agenda for reform was incomplete. The Motherland Party (ANAP) won office on the platform of economic success and eventally lost partly because of the failure of economic policy. ANAP's electoral defeat in 1991 did not mean, however, the demise of the pro-structural adjustment or the pro-liberalization coalitions. The long period of ANAP rule helped consolidate reforms to such a degree that all of the principal parties agreed on a broadly similar economic program. The ideological differences between the left and the right - a state-directed versus a marked-oriented economy - substantially diminished. The reforms of the early 1980s greatly reduced the importance of rent-seeking, particularly through foreign trade, but patronage politics became widespread again in the second half of the decade. The initial strength ANAP derived from privileged access to state resources progressively became a disadvantage, creating resentment and reaction among the populace. One source of discontent was the over-invoicing of exports (that is, fictitious exports), designed to take advantage of favorable export subsidies, and the government's failure to discipline or penalize the companies involved. This jeopardized attempts to build a pro-export coalition, and some key features of import substitution continued. The authors attribute the failure of Turkey's macroeconomic policies in the late 1980s to the government's failure tocultivate popular support for macroeconomic stability; to the top bureaucrats'lack of autonomy to counteract political pressures to expand the fiscal deficit; and to the continuation of top-down individualistic linkages between policymakers and key economic interests.National Governance,Parliamentary Government,Politics and Government,Environmental Economics&Policies,Economic Theory&Research

Economic Doctrines and Approaches to Climate Change Policy

In climate change, as in all policy issues, economic philosophy has a significant influence on how people view both the problems and the solutions. For the first time, ITIF surveys four dominant schools of economic thought and analyzes how adherents approach policy options for climate change and energy policy. With climate change and major energy legislation stalled, maybe it is time to put aside fixed philosophical notions and take a practical look on ways to address climate change in an economically feasible way. The report reviews the principles and goals of each economic doctrine, and offers a critique of the advantages and limitations of each doctrine's contribution to addressing the challenge of climate change.Innovation; Economics; Climate Change; Public Policy

The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption

This paper studies government subsidies for green technology adoption while considering the manufacturing industry’s response. Government subsidies offered directly to consumers impact the supplier’s production and pricing decisions. Our analysis expands the current understanding of the price-setting newsvendor model, incorporating the external influence from the government, who is now an additional player in the system. We quantify how demand uncertainty impacts the various players (government, industry, and consumers) when designing policies. We further show that, for convex demand functions, an increase in demand uncertainty leads to higher production quantities and lower prices, resulting in lower profits for the supplier. With this in mind, one could expect consumer surplus to increase with uncertainty. In fact, we show that this is not always the case and that the uncertainty impact on consumer surplus depends on the trade-off between lower prices and the possibility of underserving customers with high valuations. We also show that when policy makers such as governments ignore demand uncertainty when designing consumer subsidies, they can significantly miss the desired adoption target level. From a coordination perspective, we demonstrate that the decentralized decisions are also optimal for a central planner managing jointly the supplier and the government. As a result, subsidies provide a coordination mechanism