Free Trade

Does Global Trade Policy Discriminate Against Low-Carbon Industries?

A new study finds that trade policies around the world effectively subsidize high-carbon industries.


Some environmentalists would like to use trade policy to discourage environmentally harmful production, such as by imposing tariffs based upon the carbon intensity of goods. The assumption seems to be that existing trade rules are environmentally "neutral." But what if that assumption is wrong?

A new study by economist Joseph Shapiro of the University of California at Berkeley, "The Environmental Bias of Trade Policy," suggests that existing trade policy is actually biased against low-carbon production. If he's correct, merely making trade policies more "neutral" would have environmental benefits and reduce greenhouse gas emissions.

Here's the abstract:

This paper documents a new fact, then analyzes its causes and consequences: in most countries, import tariffs and non-tariff barriers are substantially lower on dirty than on clean industries, where an industry's "dirtiness" is defined as its carbon dioxide (CO2) emissions per dollar of output. This difference in trade policy creates a global implicit subsidy to CO2 emissions in internationally traded goods and so contributes to climate change. This global implicit subsidy to CO2 emissions totals several hundred billion dollars annually. The greater protection of downstream industries, which are relatively clean, substantially accounts for this pattern. The downstream pattern can be explained by theories where industries lobby for low tariffs on their inputs but final consumers are poorly organized. A quantitative general equilibrium model suggests that if countries applied similar trade policies to clean and dirty goods, global CO2 emissions would decrease and global real income would change little.

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  1. From 2001-2008 America had a dysfunctional economy due to an energy crisis. So our natural gas production plateaued at the same time global oil production plateaued which produced malinvestment and led to the 2008 Financial Meltdown. So during that period many of the elite believed China would end up manufacturing most things because America and the West weren’t willing to poison their citizens with coal pollution and displace millions with hydro dams. (although inexplicably the EU decided to poison its citizens with diesel pollution)

    Of course we know fracking was proven economical in 2009 which made North America much more attractive to manufacturers (and provided the engine to get America out of the Great Recession). So fracking will provide the “bridge“ to more renewables which means nobody should care about carbon emissions because technology will inevitably solve the problem.

  2. Trade policy can discriminate against whatever industry for whatever reason. Discriminating against some trade and in favor of other trade is what trade policy is.

    Unless climate change is a religious belief — which it resembles in many respects — so what if is discriminated against?

  3. Not only that, it discriminates against industries in civilized societies with pollution controls.

    1. This. Europe hasn’t decreased it’s CO2 emissions, it’s meerly exported them to other countries with fewer controls. Likely resulting in a net increase in CO2 emissions world wide. What Kyoto and all need to measure is the net CO2 emissions from a country not the gross. So if a country imports a lot of steel, the importing country gets dinged for the CO2 not the exporting country. I’d like to see what the results are on the EUs emissions reductions after that.

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