Climate change and trade relations between Australia and Japan

International momentum is building for action on to address climate change. In view of the likelihood of binding carbon constraints on developed nations, efficient interaction based on comparative advantage between economies via market mechanisms is considered essential for least-cost greenhouse gas abatement. Recent research has indicated that the major medium-term impacts of global and domestic carbon abatement policies on the Australian economy will be through changes in international trade flows. However, there has been little investigation of structural changes in trade relationships with major trading partners. Trade effects will, to a large extent, depend on the interaction of domestic carbon abatement policies through bilateral and multilateral mechanisms. This paper surveys a number of issues effecting trade relations between Australia and Japan which have implications for forecasting changes in international trade flows.