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Border Carbon Adjustments Based on Avoided Emissions: Addressing the Challenge of Its Design

Author

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  • Rocchi, Paola
  • Serrano, Mònica
  • Roca, Jordi
  • Arto, Iñaki

Abstract

Carbon pricing is an essential instrument to address climate change. However international differences in carbon control policies may cause not only carbon leakage but also competitiveness disadvantages. In this context, border carbon adjustments are a promising tool for discouraging these problems. But designing a real-world border carbon adjustment instrument implies to consider significant issues: technical feasibility, data availability, the risk of retaliation from developing countries, and its compatibility within the World Trade Organization legal framework. There are still no conclusive answers about a proper design. This paper is an attempt to address the above-mentioned challenges proposing a carbon border tax (CBT) based on avoided emissions. Such a CBT is applied at a product level and not at a sector level, and all international prices are deflated to guarantee that import ‘like’ goods received a treatment similar to ‘like’ domestic products. Using the WIOD, we simulate a CBT based on avoided emissions applied by the European Union, and we compare the results with a CBT based on embodied emissions.

Suggested Citation

  • Rocchi, Paola & Serrano, Mònica & Roca, Jordi & Arto, Iñaki, 2018. "Border Carbon Adjustments Based on Avoided Emissions: Addressing the Challenge of Its Design," Ecological Economics, Elsevier, vol. 145(C), pages 126-136.
    • Handle: RePEc:eee:ecolec:v:145:y:2018:i:c:p:126-136
    DOI: 10.1016/j.ecolecon.2017.08.003
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    Cited by:

    1. Liming Hong & Wei Huang & Sajid Anwar & Xiaofeng Lv, 2023. "North–South asymmetry, unilateral environmental policy and carbon tariffs," Pacific Economic Review, Wiley Blackwell, vol. 28(2), pages 241-266, May.
    2. Niko Korpar & Mario Larch & Roman Stöllinger, 2022. "Comparing Scenarios for a European Carbon Border Adjustment Mechanism: Trade, FDI and Welfare Effects with a Focus on the Austrian Economy," wiiw Research Reports 460, The Vienna Institute for International Economic Studies, wiiw.
    3. Mark Sanctuary, 2018. "Border carbon adjustments and unilateral incentives to regulate the climate," Review of International Economics, Wiley Blackwell, vol. 26(4), pages 826-851, September.
    4. Niko Korpar & Mario Larch & Roman Stöllinger, 2023. "The European carbon border adjustment mechanism: a small step in the right direction," International Economics and Economic Policy, Springer, vol. 20(1), pages 95-138, February.
    5. Wenwen Zhang & Shichun Xu & Zhengxia He & Basil Sharp & Bin Zhao & Shuxiao Wang, 2019. "Impacts of U.S. Carbon Tariffs on China’s Foreign Trade and Social Welfare," Sustainability, MDPI, vol. 11(19), pages 1-21, September.
    6. Ivan Faiella & Alessandro Mistretta, 2022. "The Net Zero Challenge for Firms’ Competitiveness," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(1), pages 85-113, September.
    7. Suvajit Banerjee, 2021. "Addressing the carbon emissions embodied in India’s bilateral trade with two eminent Annex-II parties: with input–output and spatial decomposition analysis," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(4), pages 5430-5464, April.
    8. Jordi Roca Jusmet & Emilio Padilla Rosa, 2021. "Globalización y responsabilidad en los problemas ecológicos," Revista de Economía Crítica, Asociación de Economía Crítica, vol. 31, pages 1-18.
    9. Zhang, Danyang & Wang, Hui & Löschel, Andreas & Zhou, Peng, 2021. "The changing role of global value chains in CO2 emission intensity in 2000–2014," Energy Economics, Elsevier, vol. 93(C).
    10. Jeroen C.J.M. van den Bergh & Arild Angelsen & Andrea Baranzini & W.J. Wouter Botzen & Stefano Carattini & Stefan Drews & Tessa Dunlop & Eric Galbraith & Elisabeth Gsottbauer & Richard B. Howarth & Em, 2018. "Parallel tracks towards a global treaty on carbon pricing," Working Papers 2018/12, Institut d'Economia de Barcelona (IEB).
    11. Maria Hofbauer Pérez & Carla Rhode, 2020. "Carbon Pricing: International Comparison," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 18(01), pages 49-59, April.
    12. Sun, YongPing & Xue, JinJun & Shi, XunPeng & Wang, KeYing & Qi, ShaoZhou & Wang, Lei & Wang, Cheng, 2019. "A dynamic and continuous allowances allocation methodology for the prevention of carbon leakage: Emission control coefficients," Applied Energy, Elsevier, vol. 236(C), pages 220-230.
    13. Liu, Li-Jing & Liang, Qiao-Mei & Creutzig, Felix & Ward, Hauke & Zhang, Kun, 2020. "Sweet spots are in the food system: Structural adjustments to co-control regional pollutants and national GHG emissions in China," Ecological Economics, Elsevier, vol. 171(C).
    14. Suvajit Banerjee, 2020. "Carbon Emissions Embodied in India–United Kingdom Trade: A Case Study on North–South Debate," Foreign Trade Review, , vol. 55(2), pages 199-215, May.

    More about this item

    Keywords

    Carbon Border Tax; Avoided Emissions; Climate Change; Global Public Good; European Union; GHG Emissions;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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