This is a timely, compact and well-written book which is a welcome contribution to the current policy debate on trade and climate linkage, specifically on the issue of border tax measures in the context of levelling the carbon playing field. The discussion focuses on differential commitments to be made by various countries around the world in terms of carbon emissions reductions and the implications these have for competitiveness. In simple terms, the argument is that the increased costs which are imposed on domestic producers will limit their competitiveness and should be offset by various kinds of protective measures. This is a source of major present concern to developing countries, who fear that the global economy may be moving to a form of green protectionism in which new trade measures are introduced against them on environmental grounds.

In a number of chapters, the book discusses how climate and competitiveness fit together and sets out and evaluates cost containment mechanisms, including price caps, tax credits, and others, and then discusses trade measures focusing on their design and various scenarios for implementation and their effects on US producers. The book discusses the need for coordinated international action and action focused primarily on cooperation on industrial emissions. It also stresses the need for US leadership.

The book contains substantial amounts of useful factual information and data and emphasizes the likely sectoral focus of these forms of measures, were they to be introduced. At present, they are at an advanced stage in the European Commission, but are at a somewhat more remote stage in terms of US process.

The central issue in this volume, to my eye, is on the discussion of the effects on US producers, and generally the effect of the border tax measures. Elsewhere, Ben Lockwood and I have raised the point that the discussion of border tax measures in this context seems to have taken place largely in isolation from earlier literature on border tax measures in the 1960s and 1970s associated with the introduction of the Value Added Tax (VAT).Footnote ¹ In those days, the issue was that the US had no indirect tax, but the initial argument was that the Europeans when introducing a VAT on a destination basis potentially imposed a tax which would be levied on US exports entering Europe and rebated taxes on EU exports leaving Europe. The argument was that this represented a tax advantage to European producers and substantial pressure built up in the, then, GATT for a negotiation on border tax measures. Importantly at the time, several academics, including Harry Johnson, Hiro Shibata, and others stressed the potential neutrality of border tax measures, once behavioural responses were taken into account. They emphasized how a move from an origin to a destination basis in a broadly based VAT case could be completely offset by changes in exchange rates or wage rates across countries so as to leave the original trade flows unchanged and confer no competitive advantage on producers in the EU. This literature, at the time, was sufficient to change the nature of the debate and cause a backing away from proposals then for negotiations in the WTO which would have centered primarily on the interpretation of GATT Article 3.

In its current form, a similar set of issues would seem to apply to contemporary carbon levelling measures, proposed as border tax adjustments. Elsewhere, I have argued that you should separate out the motivation for border tax adjustments from their actual form. Border tax adjustment discussion, in turn, is simply a reflection of Lerner Symmetry, as advanced by Abba Lerner in 1936 (Lerner, Reference Lerner1936). Lerner Symmetry emphasizes how a tariff on imports, simultaneously with a subsidy on exports at the same rate, is equivalent to a devaluation and has no real effects on trade flows. The same proposition applies to border tax measures, and hence this issue could be one that could be further discussed in this section.

Interestingly, the issues which arise are the differences in this particular set of proposed border measures to earlier border tax adjustments. One is that we are not talking about broadly based tax adjustments, and, in addition, we are talking about adjustments which would be at differential rates for different suppliers. One could argue that if models are constructed in which there are fixed factors of production, which are sector specific, then it is possible for the returns to the fixed factors to fully accommodate the border tax measures and for neutrality to be preserved. In the case of multiple supplying countries with differential rates, in a fully bilateral world there may not be enough instruments involved for exchange rate adjustments to fully accommodate all of the pair-wise bilateral adjustments which would be needed. In this case, neutrality may break down.

Hence, a central comment on the volume and its assessment of the policy impacts of levelling the carbon playing field is that some explicit model representation is needed beyond data. Model representations were discussed in early literature and could be usefully incorporated both into the discussion in the volume and into the wider policy debate. But for readers who are interested in a sense of where the debate stands and the differential competitiveness effects which are involved with different emissions scenarios, there is much in this volume to commend and I am sure it will attract much attention.