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Climate Policy and Border Measures: The Case of the U.S. Aluminum Industry

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  • Ian Sheldon
  • Steve McCorriston

Abstract

This article analyzes the impact of border measures for climate policy on carbon leakage and the competitiveness of U.S. aluminum producers. An appropriate border measure is shown to depend on competition in aluminum production, as well as the basis for assessing trade neutrality of a border measure. If neutrality is based on market volume, carbon leakage is prevented, but competitiveness cannot be maintained. If neutrality is based on market share, competitiveness can be maintained and there is negative carbon leakage. In either case, users of aluminum incur deadweight losses from the combination of climate policy and border measures. The key policy implication of the analysis is that appropriately designed border measures for climate policy may break the link between competitiveness and carbon leakage, but their design is important in ensuring that they are not protectionist.

Suggested Citation

  • Ian Sheldon & Steve McCorriston, 2017. "Climate Policy and Border Measures: The Case of the U.S. Aluminum Industry," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 39(2), pages 242-258.
    • Handle: RePEc:oup:apecpp:v:39:y:2017:i:2:p:242-258.
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    File URL: http://hdl.handle.net/10.1093/aepp/ppw019
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    References listed on IDEAS

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    1. Robert A. Ritz, 2009. "Carbon leakage under incomplete environmental regulation: An industry-level approach," Economics Series Working Papers 461, University of Oxford, Department of Economics.
    2. Madison Condon & Ada Ignaciuk, 2013. "Border Carbon Adjustment and International Trade: A Literature Review," OECD Trade and Environment Working Papers 2013/6, OECD Publishing.
    3. Mrs. Mai Farid & Mr. Michael Keen & Mr. Michael G. Papaioannou & Ian W.H. Parry & Ms. Catherine A Pattillo & Anna Ter-Martirosyan, 2016. "After Paris: Fiscal, Macroeconomic and Financial Implications of Global Climate Change," IMF Staff Discussion Notes 2016/001, International Monetary Fund.
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    Cited by:

    1. Sheldon, Ian M. & McCorriston, Steve, 2023. "Vertical Markets, Carbon Border Tax Adjustments and ‘Dirty Inputs’," 2023 Annual Meeting, July 23-25, Washington D.C. 335697, Agricultural and Applied Economics Association.

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    More about this item

    Keywords

    Climate policy; carbon leakage; border measures; aluminum;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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