Embodied Carbon Tariffs

In this paper, we investigate the economic and environmental impacts of tariffs on carbon embodied in trade. We find that carbon tariffs do reduce foreign emissions, but their ability to improve global cost‐effectiveness of unilateral climate policy is quite limited – even if tariff rates are based on more sophisticated second‐best considerations. If carbon tariffs are levied on the full carbon content of traded goods, they can even increase rather than decrease the global cost of emission reduction. The main effect of carbon tariffs is to shift the economic burden of developed‐world climate policies to the developing world.