Abstract
Climate change has palpable cross-scale implications given the severity of the matter epitomized in the prolonged discussions and negotiations between various parties that incur the consequences of the policy applications. Cross-border adjustment, though seemingly plausible, is a controversial method employed to mitigate the adverse potential impact of carbon emissions through placing an extra cost for the goods imported from countries that lag behind the standards set by multiple global agreements. Exercising cross-border adjustment on international trading activities is likely to have positive reverberations on taming the perils posed by climate change as well as triggering unforeseen perturbations in the interaction of actors involved in the global trading system. This chapter intends to shed light on cross-border adjustments via diagnosing the issues emerging out of the inter-scale interactions and question its effectiveness in micro and macro terms.
TopBackground
Though theoretical roots of border tax adjustments (BTAs) go back to David Ricardo in the eighteenth century, it is the 1968 OECD Report that defined BTAs as fiscal equalization measures based on the destination principle (OECD, 1968: 39). In 1970, WTO Working Party took over this definition in principle, but stated that the adjustments should not necessarily be made at the border; instead, they could be applied on internationally traded goods in general. The main idea was that the domestic taxes would be levied on domestic products no matter what the tax system was in countries of export or import.
Border adjustments related to environment on the other hand, are induced to other countries in order to level the field, i.e. to prevent competitive disadvantage. They are fiscal mechanisms developed nationally, to disburden domestic producers, particularly in energy-intensive sectors, who have to face foreign competitors from countries that lack appropriate environmental commitments.
Border adjustments target carbon reduction, that is why they can also be named as border carbon adjustments. Be they in the form of a quota restriction or a border tax, these adjustments have been widely discussed in the literature, providing arguments both against and for.
Key Terms in this Chapter
International Trade: International trade consists of economic transactions that are made between countries through exporting and importing of multifarious goods. The first type of trade occurs when a certain range of goods are beyond the productive capability of a country or when the current production falls short. The second type of trade, which happens to be more complicated than the first type mentioned above, occur even when a country possesses the capability of producing the goods or supplying the services, though, still imports them.
Environmental Politics: Environmental politics could briefly be explained as the examination of the way environmental issues are dealt with given the prevailing political systems which looks at how governments are supposed to balance environmental issues with their other priorities such as education, economy, etc.
Climate Change: Climate fluctuations, by definition, exist in the usual weather. This could be measured through the amount of rain a place gets in a year. Or it could be observed as a temperature change of a usual temperature pertaining to a place. However, melting of ice and snow caused oceans to rise due to the warming of earth’s climate. This, inevitably, triggers a series of consequences leading to emergent global problems.
Border Climate Adjustments: Border climate adjustments refer to import fees levied by carbon-taxing countries on goods manufactured in non-carbon-taxing countries. The rationale that sets the grounds for border adjustments is to ensure a level playing field in international trade while internalizing the costs of climate change into prices of goods and services.