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Unilateral climate policy design: Efficiency and equity implications of alternative instruments to reduce carbon leakage

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  • Böhringer, Christoph
  • Carbone, Jared C.
  • Rutherford, Thomas F.

Abstract

Global cost-effectiveness of unilateral emission abatement can be seriously hampered by carbon leakage. We assess three widely discussed proposals for leakage reduction: carbon-motivated border tax adjustments, industry exemptions from carbon regulation, and output-based allocation of emission allowances. We find that none of these measures amounts to a “magic bullet” when both efficiency and equity criteria matter. Compared to unilateral emission pricing alone, border carbon adjustments are most effective in leakage reduction and promotion of global cost-effectiveness but can markedly exacerbate regional inequality; exemptions and output-based allocation tend to avoid distributional pitfalls but are less effective in leakage reduction and global cost savings; exemptions may even decrease global cost-effectiveness of unilateral emission abatement.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): S2 ()
Pages: S208-S217

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:s2:p:s208-s217

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Unilateral climate policy; Leakage; Border carbon adjustments; Output-based allocation; Exemptions; Efficiency–equity trade-offs;

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Cited by:
  1. Böhringer, Christoph & Fischer, Carolyn & Rosendahl, Knut Einar, 2014. "Cost-effective unilateral climate policy design: Size matters," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 318-339.
  2. Metcalf, Gilbert E., 2013. "Using the Tax System To Address Competition Issues with a Carbon Tax," Discussion Papers dp-13-30, Resources For the Future.
  3. Christoph Böhringer & Knut Einar Rosendahl & Jan Schneider, 2013. "Unilateral Climate Policy: Can OPEC resolve the Leakage Probem?," Working Papers V-355-13, University of Oldenburg, Department of Economics, revised Mar 2013.
  4. Taran Fæhn & Cathrine Hagem & Lars Lindholt & Ståle Mæland & Knut Einar Rosendahl, 2013. "Climate policies in a fossil fuel producing country. Demand versus supply side policies," Discussion Papers 747, Research Department of Statistics Norway.
  5. López, Luis Antonio & Arce, Guadalupe & Zafrilla, Jorge Enrique, 2013. "Parcelling virtual carbon in the pollution haven hypothesis," Energy Economics, Elsevier, vol. 39(C), pages 177-186.
  6. repec:old:wpaper:355 is not listed on IDEAS
  7. Branger, Frédéric & Quirion, Philippe, 2014. "Would border carbon adjustments prevent carbon leakage and heavy industry competitiveness losses? Insights from a meta-analysis of recent economic studies," Ecological Economics, Elsevier, vol. 99(C), pages 29-39.

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