The Environmental Bias of Trade Policy in the Agri-Food Sector

The agri-food sector is a key contributor to greenhouse gas emissions and is also the economic sector most at risk from climate change. The sector is heavily protected by government intervention, particularly through trade policy, which can have significant environmental implications by either promoting or hindering the trade of polluting versus clean goods. In this paper, we study to what extent the pattern of trade policy hinders or promotes GHG emissions embedded in imported agri-food goods, focusing on three main pollutants as follows: carbon dioxide, methane, and nitrous oxide. Our findings reveal a significant environmental bias in agri-food trade policy, with most countries effectively applying a negative carbon tax—that is, an implicit subsidy—for all the pollutants considered. Notably, the structure of the trade policy of the European Union countries implies a substantial implicit carbon subsidy, while more polluting countries, such as China and Brazil, apply smaller carbon subsidies or even a carbon tax. The results have important implications for current mitigation policy.