Can we design a carbon tax that doesn’t create trade conflicts?

Economists generally agree that taxing carbon is probably the most efficient way to reach the Paris Agreement climate goals, but how a carbon tax can be structured to both prevent carbon leakage and comply with World Trade Organization rules is open for debate. The European Union aims to lead the way with its proposed carbon border adjustment mechanism (CBAM), which critics point out could lead to trade conflicts. Several other countries, including the United States, have similar—but different—ideas on how to address carbon leakage. Can we find a common way forward?

Joining this episode of Trade Winds were:

HOST

Cecilia Malmström
Nonresident Senior Fellow, Peterson Institute for International Economics (PIIE)

GUESTS

Karin Karlsbro
Member of the European Parliament, Rapporteur for the Committee on International Trade (INTA) on the Carbon Border Adjustment Mechanism (CBAM)

Jeffrey J. Schott
Senior Fellow, PIIE