Climate change policies and trade policyare on a collision course. Border tax adjustments are at thecenter of the debate and are being considered in manyOrganization for Economic Co-operation and Development(OECD) countries, notably the United States and the EuropeanUnion (EU). They will tax carbon emissions at the borderwith the aim of leveling the playing field between countrieswith different carbon emission limits. Border taxadjustments may be justified theoretically, but thechallenges of implementation and its associated costs andincentives are a key determinant of the outcome.Implementation depends on complex administrativearrangements and controversial calculations of the embeddedcarbon in imported goods. Border tax adjustment schemesmight mine rather than level the playing field.Implementation problems invite vested interests to influencethe policy process and divert border adjustment taxestowards protectionist uses. Decision makers and academicsalike have produced little evidence on implementationproblems but appear to discuss the very complex border taxadjustment scheme with the implicit assumption thatimplementation problems can be solved if the need arises.The implementation problems are linked to the difficultiesof calculating embedded carbon. This paper discusses a keyquestion: how accurately can we measure embedded carbon andwhat will the inherent uncertainty do to trade policy whenit triggers political economy forces?
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