Alternative approaches for levelling carbon prices in a world with fragmented carbon markets
AbstractWhen carbon markets are fragmented and carbon prices vary across regions, concerns arise that acting countries may encounter competitiveness and welfare losses and changes in production may lead to carbon leakage. Border Carbon Adjustments (BCAs) have been proposed as a response measure to address these issues. However, more cooperative response policies, such as linking carbon markets, can also reduce the burden of emission reduction in acting countries and help level carbon prices. This paper analyses the effects of BCAs and both direct and indirect linking on welfare, competitiveness and carbon leakage within a global recursive-dynamic computable general equilibrium (CGE) model. Results illustrate that an uneven carbon pricing can indeed lead to substantial competitiveness and welfare losses for acting countries as well as to carbon leakage. Of the instruments investigated in this paper, BCAs appear to be the best measure to preserve the competitiveness of acting countries as they shift part of the burden of emission reductions to non-acting countries. While BCAs are effective for acting countries, they cause severe welfare and competitiveness losses for non-acting countries. As a result, BCAs are less effective than linking in reducing global welfare losses, as linking tends to be beneficial for both acting and non-acting countries. The advantages of BCAs diminish as the carbon market is extended to more emission sources or to a wider international participation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 34 (2012)
Issue (Month): S2 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/eneco
Climate mitigation policy; Competitiveness; Carbon leakage; General equilibrium;
Find related papers by JEL classification:
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Weitzel, Matthias & Peterson, Sonja, 2012. "Border carbon adjustment: Not a very promising climate policy instrument," Kiel Policy Brief 55, Kiel Institute for the World Economy (IfW).
- 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.
- repec:hal:ciredw:halshs-00870689 is not listed on IDEAS
- Stephan Schott, 2013. "Carbon Pricing Options for Canada," Canadian Public Policy, University of Toronto Press, vol. 39(s2), pages 109-124, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.