The Effect of Carbon Tariffs on UK Food Trade and Its Carbon Emissions : A Gravity Model with Micro-Simulation

The increase in global trade has contributed to the integration of domestic economies worldwide into a single global economy. Despite the welfare benefits from global trade, concerns remain regarding the impact of trade on the environment, particularly on global environmental threats like greenhouse gases (GHG) emissions. At a domestic level, carbon tariffs can be used to reduce global carbon emissions. In this article, we test the ex-ante effects of a carbon tariff on food imports and carbon emissions. We model UK food imports from the EU using a gravity model, and micro-simulate the border impact of a tariff proportional to the carbon emission of each food category. Results shows that the UK carbon tariffs would cut annual UK emissions by 37.5 MtCO2e, driven mainly by reductions of meat, dairy, and cereals products, where domestic production is sufficient to meet demand in the absence of trade. The tariff would also partly improve the nutritional profile of diets and health of the population. Implications of these findings are discussed