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The Economic And Environmental Effects Of Border Tax Adjustments For Climate Policy

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  • Warwick J. McKibbin

    ()

  • Peter J. Wilcoxen

Abstract

For the foreseeable future, climate change policy will be considerably more stringent in some countries than in others. Indeed, the United Nations Framework Convention on Climate Change explicitly states that developed countries must take meaningful action before any obligations are to be placed on developing countries. However, differences in climate policy will lead to differences in energy costs, and to concerns about competitive advantage. In high-cost countries, there will be political pressure to impose border adjustments, or “green tariffs”, on imports from countries with little or no climate policy and low energy costs. The adjustments would be based on the carbon emissions associated with production of each imported product, and would be intended to match the cost increase that would have occurred had the exporting country adopted a climate policy similar to that of the importing country. In this paper, we estimate how large such tariffs would be in practice, and then examine their economic and environmental effects using G-Cubed, a detailed multi-sector, multi-country model of the world economy. We find that the tariffs would be small on most traded goods, would reduce leakage of emissions reduction very modestly, and would do little to protect import-competing industries. We conclude that the benefits produced by border adjustments would be too small to justify their administrative complexity or their deleterious effects on international trade.

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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2009-09.

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Length: 36 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:een:camaaa:2009-09

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  1. Ben Lockwood & John Whalley, 2010. "Carbon-motivated Border Tax Adjustments: Old Wine in Green Bottles?," The World Economy, Wiley Blackwell, vol. 33(6), pages 810-819, 06.
  2. Arik Levinson & M. Scott Taylor, 2004. "Unmasking the Pollution Haven Effect," NBER Working Papers 10629, National Bureau of Economic Research, Inc.
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Cited by:
  1. Bao, Qin & Tang, Ling & Zhang, ZhongXiang & Wang, Shouyang, 2013. "Impacts of border carbon adjustments on China's sectoral emissions: Simulations with a dynamic computable general equilibrium model," China Economic Review, Elsevier, vol. 24(C), pages 77-94.
  2. Nicole A. MATHYS & Jaime de MELO, 2010. "Trade and Climate Change: The Challenges Ahead," Working Papers P14, FERDI.
  3. Ngo Van Long, 2014. "The Green Paradox in Open Economies," CESifo Working Paper Series 4639, CESifo Group Munich.
  4. Frankel, Jeffrey, 2008. "Global Environmental Policy and Global Trade Policy," Working Paper Series rwp08-058, Harvard University, John F. Kennedy School of Government.
  5. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2011. "Embodied Carbon Tariffs," NBER Working Papers 17376, National Bureau of Economic Research, Inc.
  6. Daniel Gros, 2009. "Global Welfare Implications of Carbon Border Taxes," CESifo Working Paper Series 2790, CESifo Group Munich.
  7. Jean-Marc Burniaux & Joaquim Oliveira Martins, 2012. "Carbon leakages: a general equilibrium view," Economic Theory, Springer, vol. 49(2), pages 473-495, February.
  8. Kala Krishna, 2011. "Limiting Emissions and Trade: Some Basic Ideas," NBER Chapters, in: The Design and Implementation of U.S. Climate Policy, pages 53-61 National Bureau of Economic Research, Inc.
  9. Zhou, Xin & Yano, Takashi & Kojima, Satoshi, 2013. "Proposal for a national inventory adjustment for trade in the presence of border carbon adjustment: Assessing carbon tax policy in Japan," Energy Policy, Elsevier, vol. 63(C), pages 1098-1110.

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