IDEAS home Printed from https://ideas.repec.org/p/ces/ifowps/_350.html
   My bibliography  Save this paper

A Simple Fix for Carbon Leakage? Assessing the Environmental Effectiveness of the EU Carbon Border Adjustment

Author

Listed:
  • George Mörsdorf

Abstract

As part of its ambitious European Green Deal package, at the heart of which stands the commitment to become carbon-neutral by 2050, the European Commission announced that it would propose a “carbon border adjustment mechanism” to address the risk of carbon leakage. This study models the measure in a Computable General Equilibrium framework and analyses how effective it would be in reducing the incidence of carbon leakage. The analysis suggests that even a sectorally limited EU carbon border adjustment would reduce the carbon leakage rate by up to two thirds, making it more effective than the current system of free allocation. Besides environ mental benefits, it would also offset competitiveness losses of European energy-in tensive industries incurred by a higher EU carbon price and generate additional income for public budgets. At the same time, the analysis shows that around a third of the overall incidence of carbon leakage is driven not by competitiveness but by energy price effects, making it impossible to offset by border measures.

Suggested Citation

  • George Mörsdorf, 2021. "A Simple Fix for Carbon Leakage? Assessing the Environmental Effectiveness of the EU Carbon Border Adjustment," ifo Working Paper Series 350, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:ifowps:_350
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/wp-2021-350-moersdorf-eu-carbon-border-adjustment.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2016. "The Strategic Value of Carbon Tariffs," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 28-51, February.
    2. Roland Ismer & Karsten Neuhoff & Alice Pirlot, 2020. "Border Carbon Adjustments and Alternative Measures for the EU ETS: An Evaluation," Discussion Papers of DIW Berlin 1855, DIW Berlin, German Institute for Economic Research.
    3. Naegele, Helene & Zaklan, Aleksandar, 2019. "Does the EU ETS cause carbon leakage in European manufacturing?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 93, pages 125-147.
    4. 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.
    5. Paul T E Cusack, 2020. "On Pain," Biomedical Journal of Scientific & Technical Research, Biomedical Research Network+, LLC, vol. 31(3), pages 24253-24254, October.
    6. Dechezlepretre, Antoine & Sato, Misato, 2017. "The impacts of environmental regulations on competitiveness," LSE Research Online Documents on Economics 77700, London School of Economics and Political Science, LSE Library.
    7. Jared C. Carbone & Nicholas Rivers, 2017. "The Impacts of Unilateral Climate Policy on Competitiveness: Evidence From Computable General Equilibrium Models," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 24-42.
    8. Hoel, Michael, 1996. "Should a carbon tax be differentiated across sectors?," Journal of Public Economics, Elsevier, vol. 59(1), pages 17-32, January.
    9. 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.
    10. Ben McWilliams & Georg Zachmann, 2020. "A European carbon border tax- much pain, little gain," Policy Contributions 35218, Bruegel.
    11. Antoine Dechezleprêtre & Misato Sato, 2017. "The Impacts of Environmental Regulations on Competitiveness," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(2), pages 183-206.
    12. Bednar-Friedl, Birgit & Schinko, Thomas & Steininger, Karl W., 2012. "The relevance of process emissions for carbon leakage: A comparison of unilateral climate policy options with and without border carbon adjustment," Energy Economics, Elsevier, vol. 34(S2), pages 168-180.
    13. Lessmann, Kai & Marschinski, Robert & Edenhofer, Ottmar, 2009. "The effects of tariffs on coalition formation in a dynamic global warming game," Economic Modelling, Elsevier, vol. 26(3), pages 641-649, May.
    14. Aaron Cosbey & Susanne Droege & Carolyn Fischer & Clayton Munnings, 2019. "Developing Guidance for Implementing Border Carbon Adjustments: Lessons, Cautions, and Research Needs from the Literature," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 13(1), pages 3-22.
    15. James R. MARKUSEN, 2021. "International Externalities And Optimal Tax Structures," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 16, pages 341-355, World Scientific Publishing Co. Pte. Ltd..
    16. Burniaux, Jean-Marc & Truong Truong, 2002. "GTAP-E: An Energy-Environmental Version of the GTAP Model," GTAP Technical Papers 923, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    17. Burniaux, Jean-March & Truong, Truong P., 2002. "Gtap-E: An Energy-Environmental Version Of The Gtap Model," Technical Papers 28705, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    18. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    19. Gerlagh, Reyer & Kuik, Onno, 2014. "Spill or leak? Carbon leakage with international technology spillovers: A CGE analysis," Energy Economics, Elsevier, vol. 45(C), pages 381-388.
    20. Angel Aguiar & Maksym Chepeliev & Erwin L. Corong & Robert McDougall & Dominique van der Mensbrugghe, 2019. "The GTAP Data Base: Version 10," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 4(1), pages 1-27, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mörsdorf, George, 2022. "A simple fix for carbon leakage? Assessing the environmental effectiveness of the EU carbon border adjustment," Energy Policy, Elsevier, vol. 161(C).
    2. Clora, Francesco & Yu, Wusheng & Corong, Erwin, 2023. "Alternative carbon border adjustment mechanisms in the European Union and international responses: Aggregate and within-coalition results," Energy Policy, Elsevier, vol. 174(C).
    3. Jakob, Michael, 2021. "Climate policy and international trade – A critical appraisal of the literature," Energy Policy, Elsevier, vol. 156(C).
    4. Clora, Francesco & Yu, Wusheng, 2022. "GHG emissions, trade balance, and carbon leakage: Insights from modeling thirty-one European decarbonization pathways towards 2050," Energy Economics, Elsevier, vol. 113(C).
    5. Aliénor Cameron & Marc Baudry, 2023. "The case for carbon leakage and border adjustments: where do economists stand?," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 25(3), pages 435-469, July.
    6. Beck, Ulrik R. & Kruse-Andersen, Peter K. & Stewart, Louis B., 2023. "Carbon leakage in a small open economy: The importance of international climate policies," Energy Economics, Elsevier, vol. 117(C).
    7. Garnadt, Niklas & Grimm, Veronika & Reuter, Wolf Heinrich, 2020. "Carbon adjustment mechanisms: Empirics, design and caveats," Working Papers 11/2020, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    8. Susanne Droege & Carolyn Fischer, 2020. "Pricing Carbon at the Border: Key Questions for the EU," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 18(01), pages 30-34, April.
    9. Florian Rey & Thierry Madiès, 2021. "Addressing the concerns about carbon leakage in the implementation of carbon pricing policies: a focus on the issue of competitiveness," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(1), pages 53-75, March.
    10. 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).
    11. Ward, Hauke & Steckel, Jan Christoph & Jakob, Michael, 2019. "How global climate policy could affect competitiveness," Energy Economics, Elsevier, vol. 84(S1).
    12. Forin, Silvia & Radebach, Alexander & Steckel, Jan Christoph & Ward, Hauke, 2018. "The effect of industry delocalization on global energy use: A global sectoral perspective," Energy Economics, Elsevier, vol. 70(C), pages 233-243.
    13. Dechezleprêtre, Antoine & Gennaioli, Caterina & Martin, Ralf & Muûls, Mirabelle & Stoerk, Thomas, 2022. "Searching for carbon leaks in multinational companies," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    14. Bellora, Cecilia, 2020. "Carbon Border Adjustment and Alternatives," Conference papers 333210, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    15. Peter Kjær Kruse-Andersen & Peter Birch Sørensen, 2021. "Opimal Unilateral Climate Policy with Carbon Leakage at the Extensive and the Intensive Margin," CESifo Working Paper Series 9185, CESifo.
    16. Elisabeth Christen & Bettina Meinhart & Franz Sinabell & Gerhard Streicher, 2021. "Transportkostenwahrheit im internationalen Handel," WIFO Studies, WIFO, number 67045, April.
    17. Yu, Wusheng & Clora, Francesco & Costa, Louis & Baudry, Gino, 2021. "Dietary Transitions As Climate Mitigation Measures in Europe: Implications of Supply-Side Responses and Trade Policy Regimes," 2021 Conference, August 17-31, 2021, Virtual 315912, International Association of Agricultural Economists.
    18. Sakai, Marco & Barrett, John, 2016. "Border carbon adjustments: Addressing emissions embodied in trade," Energy Policy, Elsevier, vol. 92(C), pages 102-110.
    19. Miria A. Pigato, 2019. "Fiscal Policies for Development and Climate Action," World Bank Publications - Books, The World Bank Group, number 31051, December.
    20. Flavio Tosi Feijó, 2018. "Brazilian Competitiveness Of Energy-Intensive And Trade-Exposed Industrial Sectors Vis-À-Vis The Adoption Of Border Carbon Adjustments By The Eu: An Approach Using The Gtap-Ep Model," Anais do XLIV Encontro Nacional de Economia [Proceedings of the 44th Brazilian Economics Meeting] 100, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

    More about this item

    Keywords

    Carbon border; adjustment; carbon leakage; Computable General Equilib rium; EU climate policy; energy-intensive industries;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ifowps:_350. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/ifooode.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.