Various carbon tax regimes have been proposed or constructed with a view to reducing carbon consumption and its impact on the environment. Recognizing that the unilateral imposition of a carbon tax may have competitiveness implications for producers in the home country in a world of global trade and supply chains, certain policy approaches regarding the tax treatment of imports and exports can help avoid the migration of carbon emissions. However, when a carbon tax system includes provisions regarding imports and exports, there are implications that arise from U.S. international trade agreements at the World Trade Organization and free trade agreements.

This paper examines the issues policymakers must keep in mind when designing a revenue-neutral carbon tax system structured as a consumption tax that includes provisions regarding the application of the tax to imports and exports.