Coordination and Commitment in International Climate Action: Evidence from Palm Oil

Weak environmental regulation has global consequences. When domestic regulation fails, the international community can intervene by targeting emitters with import tarifs. I develop a dynamic empirical framework for evaluating import tarifs as a substitute for domestic regulation, and I apply it to the market for palm oil, a major driver of deforestation and one of the largest sources of emissions globally. Coordinated, committed tarifs reduce emissions by 39% relative to 40% under domestic regulation, but free-riding concerns undermine coordination and static incentives undermine commitment. Alternatives include unilateral EU action and a domestic export tax, which reduce emissions by up to 6% and 39%. The export tax generates significant revenue at the expense of foreign consumers and is fiscally appealing independent of emission concerns.