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A look inwards: Carbon tariffs versus internal improvements in emissions-trading systems

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  • Springmann, Marco

Abstract

Subglobal climate policies will be the norm for some years to come. However, several options exist for improving the efficiency of domestic emissions regulation. A prominent but contentious policy option for improving the external efficiency is the implementation of carbon tariffs on non-regulating regions. This is thought to reduce carbon leakage and increase domestic production, albeit at the cost of non-regulating countries. In contrast, internal efficiency improvements can be more collaborative in type. Among others, they include extending and linking of domestic emissions-trading systems. This study compares the relative economic impacts of those policy options if Annex I countries would follow one or the other. The study uses a computable-general-equilibrium model of the global world economy and develops a set of emissions-trading and carbon-tariff scenarios with various degrees of sectoral and regional coverage. For a globally effective Annex I emissions-reduction target of 20%, the results indicate that linking Annex I countries' domestic emissions-trading systems and expanding their sectoral coverage could yield greater global welfare improvements than implementing carbon tariffs on energy-intensive goods imported from non-Annex I countries. While non-Annex I countries would be significantly better off without facing carbon tariffs on their exports, Annex I countries could gain from either policy. The relative gains from linking and extending the sectoral coverage of domestic emissions-trading systems are greater for early policy implementation within a large Annex I coalition of climate-regulating countries, while late implementation within a small coalition would yield greater relative welfare gains from imposing carbon tariffs. The results suggest that, in addition to the political benefits, there exists an economic rationale for substituting the external efficiency improvements associated with implementing carbon tariffs with internal ones associated with extending Annex I countries' emissions-trading systems.

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  • Springmann, Marco, 2012. "A look inwards: Carbon tariffs versus internal improvements in emissions-trading systems," Energy Economics, Elsevier, vol. 34(S2), pages 228-239.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:s2:p:s228-s239
    DOI: 10.1016/j.eneco.2012.08.039
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    2. Böhringer, Christoph & Balistreri, Edward J. & Rutherford, Thomas F., 2012. "The role of border carbon adjustment in unilateral climate policy: Overview of an Energy Modeling Forum study (EMF 29)," Energy Economics, Elsevier, vol. 34(S2), pages 97-110.
    3. 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.
    4. Lian-Biao Cui & Ma-Lin Song, 2017. "Designing and Forecasting the Differentiated Carbon Tax Scheme Based on the Principle of Ability to Pay," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(01), pages 1-25, February.
    5. Jonathon M. Becker & Jared C. Carbone & Andreas Loeschel, 2022. "Induced Innovation and Carbon Leakage," Working Papers 2022-04, Colorado School of Mines, Division of Economics and Business.
    6. Pan, Wenqi & Kim, Man-Keun & Ning, Zhuo & Yang, Hongqiang, 2020. "Carbon leakage in energy/forest sectors and climate policy implications using meta-analysis," Forest Policy and Economics, Elsevier, vol. 115(C).
    7. Zhu, Yongbin & Shi, Yajuan & Wu, Jing & Wu, Leying & Xiong, Wen, 2018. "Exploring the Characteristics of CO2 Emissions Embodied in International Trade and the Fair Share of Responsibility," Ecological Economics, Elsevier, vol. 146(C), pages 574-587.
    8. Jaskólski, Marcin, 2016. "Modelling long-term technological transition of Polish power system using MARKAL: Emission trade impact," Energy Policy, Elsevier, vol. 97(C), pages 365-377.
    9. Zhao, Bei & Yarime, Masaru, 2022. "The impacts of carbon tariffs on international trade flows and carbon emissions: An analysis integrating trade elasticities with an application to US-China trade," Energy Economics, Elsevier, vol. 115(C).
    10. Xiao Dai & Jian Wu & Liang Yan & Qian Zhang & Fangli Ruan & Dan Wang, 2019. "Industrial Structure Restructuring, Production Factor Allocation Analysis: Based on a Mineral Resource-Intensive City—Jiaozuo City," Sustainability, MDPI, vol. 11(4), pages 1-19, February.
    11. Springmann, Marco & Zhang, Da & Xiliang, Zhang & Karplus, Valerie J., 2013. "Incorporating consumption-based emissions accounting into climate policy in China: Provincial target setting and ETS baseline allocations," Conference papers 332341, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    12. Fang, Yuan & Yu, Yugang & Shi, Ye & Liu, Jie, 2020. "The effect of carbon tariffs on global emission control: A global supply chain model," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    Climate policy; Carbon tariffs; Emissions trading; Computable general equilibrium;
    All these keywords.

    JEL classification:

    • 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
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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