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Border Carbon Ajustment in Europe and Trade Retaliation: What would be the Cost for European Union?

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  • Jean Fouré
  • Houssein Guimbard
  • Stéphanie Monjon

Abstract

Unilateral climate policy, such as carbon pricing, represents an additional cost to the economy, especially to energyintensive industrial sectors, as well as those exposed to international competition. A border carbon adjustment (BCA) is often presented as an attractive policy option for countries that want to go ahead without waiting for a global climate agreement. We used the computable general equilibrium model MIRAGE-e to simulate the impact of the introduction of a BCA on imports of energy intensive products in EU and EFTA countries and to evaluate the export losses their main trade partners would suffer. Given that a BCA is a trade measure, it would certainly lead to disputes at the World Trade Organization (WTO). If the BCA is considered illegal, the losses suffered by some partners may justify retaliation, as authorized by a WTO dispute settlement. The overall aggregated impacts of these measures would be negative but marginal, meaning that neither the BCA nor trade retaliation would have a marked impact on consumers’ real income or GDP, while prohibitive retaliatory tariffs are more likely to target sensitive products in the EU. A BCA would ultimately be a signal of the EU’s willingness to maintain an ambitious climate policy.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2013-34.

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Date of creation: Nov 2013
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Handle: RePEc:cii:cepidt:2013-34

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Keywords: emission trading scheme; border carbon adjustment; trade retaliation;

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  1. Paul Veenendaal & Ton Manders, 2008. "Border tax adjustment and the EU-ETS, a quantitative assessment," CPB Document, CPB Netherlands Bureau for Economic Policy Analysis 171, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2013. "Modelling the world economy at the 2050 horizon," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 21(4), pages 617-654, October.
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  10. Houssein Guimbard & Sébastien Jean & Mondher Mimouni & Xavier Pichot, 2012. "MAcMap-HS6 2007, an Exhaustive and Consistent Measure of Applied Protection in 2007," Economie Internationale, CEPII research center, CEPII research center, issue 130, pages 99-122.
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  15. 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, Elsevier, vol. 34(S2), pages S97-S110.
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