Carbon tariff’s Impact on the Iron and Steel’ Export in China

Liang Qi-di

Abstract：Climate change is regarded as a primary threat to humans sustainable development. Imposing carbon tariffs on imported carbon-intensive product to reduce carbon emission has become a hot topic. As the one of biggest export-oriented country and CO2 emitter， once the carbon tariff policy is implemented， Chinas export trade will be influenced， especially iron and steel industry， which is not only an important part of export but also high carbon-emission industry. Aiming to analyse how other countries imposing carbon tariff will affect Chinas iron and steel product export， this paper takes iron and steel trade of China-U.S. and China-EU as study object， uses trade gravity model， introduces severalk variables to estimate tariffs impact on iron and steel export. Then taking import tariffs impact as a proxy to estimate the future impact of carbon tariffs. The result shows that 1% additional carbon tariff would result in 0.6% decline of Chinas iron and steel export. After analysing carbon tariffs impact， this paper makes a few suggestions on Chinas response to carbon tariffs on policy level.

Key words：carbon tariff；climate change policy；policy simulation

中圖分類號：F426.31 文獻標識碼：A 文章編號：1671-2064（2018）08-0253-04

1 Background

Climate change is regarded as a primary threat to humans sustainable development. In order to alleviate the problem of global warming， numbers of measurements are taken to reduce carbon emission. ‘United Nations Framework Convention on Climate Change and ‘Kyoto Protocol are two representative international documents. In order to eliminate this unfair competition， carbon tariff first appeared in EU. U.S. promulgated the ‘Clean Energy and Security Act in 2009， announcing the imposition of carbon tariff on carbon-intensive imported products from countries that have not carbon-reduction action from 2020. So it is significant for China to consider about carbon tariffs impact on export products， especially energy-intensive industries like steel industry.

2 Literature review

Some scholars study carbon tariffs impact on emission reduction and welfare. Focusing on US， Bordoff （2008） also pointed that Border Tax Adjustment （BTA） has little effect on protection of domestic industries competition and preventing carbon leakage， but will become free trade barrier on the contrary. McKibbin and Wilcoxen （2008） use CGE model to simulate the effect of carbon tariffs imposed by EU and U.S.， their result shows that carbon tariff has very limited effect for most trade goods and protection for domestic industries.

Some researchers study carbon tariffs impact on China. Hübler （2012） uses CGE model to analyze two scenarios for China， the results show that participating in climate regime is better off than not participating and instead a carbon tariff. Based on Chinas input-output table in 2002， Shen and Li （2010） analyze carbon tariffs impact on Chinas industrial product， export and employment. The results show that $30 per ton or $60 per ton of carbon would result in 3.53% or 6.95% decline of export and 1.22% or 2.39% decline of employment. Generally speaking， carbon tariffs have negative effect for China.

Current studies on unilateral environment policy are mainly based on multi-region multi-sector computable general equilibrium （CGE） model， and the study about carbon tariffs impact are mostly focus on the whole nation， not a specific sector or industry； This paper will combine empirical and qualitative analysis， use trade gravity model to analyse import tariffs impact on steel products， then infer the possible effect of carbon tariffs as a kind of import tariffs.

3 Methodology

This analysis uses trade gravity model to identify how tariffs effect iron and steel trade between China and US/EU. Trade gravity model is widely used to analyse trade flows and to measure trade potential. The initial equation is： Tij=A（YiYj）/Dij. Tij represents bilateral trade flow between country i and j， A is trade coefficient， Yi and Yj represent economic scale of country i and j， Dij is the trade distance. In order to facilitate the empirical research， this paper takes the logarithm to make the equation linear.

This essay will use import amount as dependent variable， choose data from 2003 to 2016. In order to eliminate problems caused by inconsistent statistical measurement， the steel data used in this essay is the data of article whose HS code is 72 （iron and steel）. The data about trade value， trade volume and import price from China come from United States Census Bureau and European Commission Market Access Database. Data of GDP of US and EU is from World Bank database. Annual exchange rate for Euro is from Bank of China and for USD is from China Statistical Year Book. Since carbon tariffs have not been imposed yet， the historical data are unavailable， so import tariffs is used to analyse tariffs impact and then estimate carbon tariffs impact. There is no U.S. and EUs average import tariffs data for iron and steel （HS72 article）， according to the data found from the website of U.S. Census Bureau and European Commission Market Access Database， this paper uses the formula： average import tariff = import value/import volume - domestic average price to calculate the import tariffs.