Paris After Trump: Carbon Tariffs Reloaded

We formulate a multi-regional, multi commodity general equilibrium trade model to investigate the implications of border taxes on embodied carbon. This has been the topic of a number of papers in the academic literature, most of which focus on the implications of border carbon adjustments on imports from China, Brazil, India, Russia and other industrializing countries which have become big exporters of carbon intensive products. Several papers assess the effectiveness of border carbon adjustments as a means of inducing these countries to join a global carbon agreements. In the wake of Donald Trump’s election, there a real prospect of the US withdrawing from the Paris agreement, and several countries have raised the prospect of border carbon adjustments applied to US exports. In the calculations undertaken here we implement the Paris INDC targets and evaluate the economic and environmental implications of US withdraw from the agreement.

The policy questions to be addressed include:

* What are the welfare and environmental implications for global regions of US withdrawl? (Metrics: GDP, consumption (EV), regional and global carbon emissions)

* Suppose that a subset of the Paris signatories impose border taxes on the carbon content of goods imported from the US. What are the economic and environmental implications of these policies and how do these results depend on (i) the number of countries which impose border taxes, (ii) the method by which carbon content is assessed, (iii) the magnitude of the carbon tax?

* To what extent can the US “fight back” using border tax adjustments which penalize countries engaged in border carbon adjustments? (In other words, what might be the economic consequences of a “trade war”?)

The talk will include a brief digression on the computational challenges involved in computing Nash equilibria in large scale trade models.