Paul Krugman is happy with the recent WTO/UNEP report on trade and climate change:
There was some question about how the WTO would handle cap-and-trade — whether it would accept the need for carbon tariffs, if some countries (cough China cough) drag their feet, or whether it would adopt a purist free-trade rule. The answer seems to be in — the WTO is going to treat cap-and-trade the same way it treats VATs, with border taxes allowed if they can be seen as reducing distortions.
I suppose one way to define the "purist free-trade" position is that no import tariffs/charges of any sort are allowed. So, in this sense, he is correct that accepting the need for carbon tariffs goes against the purist view.
Another way to think about the "purist free-trade" position, though, is to say that any such tariffs/charges must not be imposed in a discriminatory manner, that is, they must be equivalent to a domestic counterpart. If that definition is used, than the WTO report is completely consistent with a "purist free-trade" stance.
