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The Design of Border Adjustments for Carbon Prices

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  • Samuel Kortum
  • David Weisbach

Abstract

We consider the economics and the design of border adjustments (BAs) under a carbon tax. BAs under a carbon tax are taxes on imports and rebates on exports, based on the emissions from the production of a good. They are thought to be a method of reducing inefficiencies from a unilateral carbon price, such as shifts in the location of production, known as leakage. After examining the basic economics of BAs, we examine three design issues: which goods BAs should apply to, which emissions from the production of those goods should be taxed, and from and to which countries BAs should apply. We conclude that BAs will impose high administrative costs and need stronger welfare justifications.

Suggested Citation

  • Samuel Kortum & David Weisbach, 2017. "The Design of Border Adjustments for Carbon Prices," National Tax Journal, National Tax Association;National Tax Journal, vol. 70(2), pages 421-446, June.
    • Handle: RePEc:ntj:journl:v:70:y:2017:i:2:p:421-446
    DOI: 10.17310/ntj.2017.2.07
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    Cited by:

    1. Rosa van den Ende & Antoine Mandel & Agnieszka Rusinowska, 2023. "Network-based allocation of responsibility for GHG emissions," Post-Print halshs-04188365, HAL.
    2. George David Banks & Timothy Fitzgerald, 2020. "A sectoral approach allows an artful merger of climate and trade policy," Climatic Change, Springer, vol. 162(2), pages 165-173, September.
    3. Perdana, Sigit & Vielle, Marc, 2022. "Making the EU Carbon Border Adjustment Mechanism acceptable and climate friendly for least developed countries," Energy Policy, Elsevier, vol. 170(C).
    4. Miria A. Pigato, 2019. "Fiscal Policies for Development and Climate Action," World Bank Publications - Books, The World Bank Group, number 31051, December.
    5. Ambec, Stefan, 2022. "The European Union’s Carbon Border Adjustment Mechanism: Challenges and Perspectives," TSE Working Papers 22-1365, Toulouse School of Economics (TSE).
    6. Cheng, Haitao, 2021. "Border carbon adjustments with endogenous assembly locations," Economic Modelling, Elsevier, vol. 105(C).
    7. Viola Becattini & Paolo Gabrielli & Linda Frattini & David Weisbach & Marco Mazzotti, 2022. "A two-step carbon pricing scheme enabling a net-zero and net-negative CO $$_2$$ 2 -emissions world," Climatic Change, Springer, vol. 171(1), pages 1-22, March.
    8. Haitao CHENG & ISHIKAWA Jota, 2021. "Carbon Tax and Border Tax Adjustments with Technology and Location Choices," Discussion papers 21030, Research Institute of Economy, Trade and Industry (RIETI).
    9. Zhong, Jiarui & Pei, Jiansuo, 2022. "Beggar thy neighbor? On the competitiveness and welfare impacts of the EU's proposed carbon border adjustment mechanism," Energy Policy, Elsevier, vol. 162(C).
    10. Warwick J. Mckibbin & Adele C. Morris & Peter J. Wilcoxen & Weifeng Liu, 2018. "The Role Of Border Carbon Adjustments In A U.S. Carbon Tax," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-41, February.
    11. Mehling, M. A., 2023. "Supply-Side Crediting to Manage Climate Policy Spillover Effects," Cambridge Working Papers in Economics 2345, Faculty of Economics, University of Cambridge.
    12. Overland, Indra & Sabyrbekov, Rahat, 2022. "Know your opponent: Which countries might fight the European carbon border adjustment mechanism?," Energy Policy, Elsevier, vol. 169(C).
    13. Alex Borodin & Vladislav Zaitsev & Zahid F. Mamedov & Galina Panaedova & Andrey Kulikov, 2022. "Mechanisms for Tax Regulation of CO 2 -Equivalent Emissions," Energies, MDPI, vol. 15(19), pages 1-15, September.
    14. Levent Aydın, 2018. "The possible macroeconomic and sectoral impacts of carbon taxation on Turkey’s economy: A computable general equilibrium analyses," Energy & Environment, , vol. 29(5), pages 784-801, August.
    15. Strand,Jon, 2021. "Incentivizing Carbon Taxation in Low-Income Countries : Tax Rebating versus Carbon Crediting," Policy Research Working Paper Series 9698, The World Bank.
    16. Stefano Carattini & Giseong Kim & Givi Melkadze & Aude Pommeret, 2023. "Carbon Taxes and Tariffs, Financial Frictions, and International Spillovers," CESifo Working Paper Series 10851, CESifo.

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