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Towards a Just and Cost-Effective Climate Policy: On the relevance and implications of deciding between a Production versus Consumption Based Approach

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  • Karl Steininger

    ()
    ( Karl-Franzens University of Graz)

  • Christian Lininger

    ()
    ( Karl-Franzens University of Graz)

  • Susanne Droege

    (SWP - German Institute for International and Security Affairs)

  • Dominic Roser

    ( Karl-Franzens University of Graz)

  • Luke Tomlinson

    (University of Oxford)

Abstract

The bottom-up national approaches to implement global climate policy under the current United Nations scheme raise concerns about carbon leakage and distributive justice. To limit these concerns, some propose switching to a consumption based emission accounting principle and implementing an associated policy reorientation. We analyse the potential merits of such a switch to a consumption-based approach, in the context of unilateral climate policies implemented by a border adjustment for the carbon content of imports and exports. First, we look into the relationship between the accounting principle and justice considerations. We distinguish the Responsibility Question (Do consumers' or producers' choices bring the emissions about?) and the Policy Base Question (Should consumption or production serve as the policy base?). Second, we investigate whether following a consumption- versus production-based policy implies a difference in terms of costeffectiveness in achieving the environmental target. We find that consumers and producers are jointly responsible for emissions. We also find that from the perspective of justice this does not settle the question whether consumption or production ought to serve as the climate policy base. Rather, this depends on the distributive consequences of switching to consumption-based accounting. We find that (global) costeffectiveness is currently higher when unilateral climate policy by industrialized countries is consumption-based, and accompanied by clean technology transfer. If implemented in terms of border carbon adjustments, justice considerations suggest channeling import tax revenues to developing and emerging economies. We also find that the carbon border adjustment switch need not include export rebates, if these are difficult on political grounds.

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Bibliographic Info

Paper provided by University of Graz, Department of Economics in its series Graz Economics Papers with number 2012-06.

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Date of creation: Nov 2012
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Handle: RePEc:grz:wpaper:2012-06

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Related research

Keywords: post 2012 climate policies; CBDR; competitiveness; carbon leakage; border carbon adjustments;

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References

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  1. Fischer, Carolyn & Fox, Alan K., 2012. "Comparing policies to combat emissions leakage: Border carbon adjustments versus rebates," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 199-216.
  2. Lenzen, Manfred & Murray, Joy & Sack, Fabian & Wiedmann, Thomas, 2007. "Shared producer and consumer responsibility -- Theory and practice," Ecological Economics, Elsevier, Elsevier, vol. 61(1), pages 27-42, February.
  3. Kuik, Onno & Hofkes, Marjan, 2010. "Border adjustment for European emissions trading: Competitiveness and carbon leakage," Energy Policy, Elsevier, Elsevier, vol. 38(4), pages 1741-1748, April.
  4. Peters, Glen P., 2008. "From production-based to consumption-based national emission inventories," Ecological Economics, Elsevier, Elsevier, vol. 65(1), pages 13-23, March.
  5. Bastianoni, Simone & Pulselli, Federico Maria & Tiezzi, Enzo, 2004. "The problem of assigning responsibility for greenhouse gas emissions," Ecological Economics, Elsevier, Elsevier, vol. 49(3), pages 253-257, July.
  6. 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, Elsevier, vol. 34(S2), pages S168-S180.
  7. Jean-Marc Burniaux & Jean Chateau & Romain Duval, 2013. "Is there a case for carbon-based border tax adjustment? An applied general equilibrium analysis," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 45(16), pages 2231-2240, June.
  8. Ferng, Jiun-Jiun, 2003. "Allocating the responsibility of CO2 over-emissions from the perspectives of benefit principle and ecological deficit," Ecological Economics, Elsevier, Elsevier, vol. 46(1), pages 121-141, August.
  9. Wiedmann, Thomas, 2009. "A review of recent multi-region input-output models used for consumption-based emission and resource accounting," Ecological Economics, Elsevier, Elsevier, vol. 69(2), pages 211-222, December.
  10. Muñoz, Pablo & Steininger, Karl W., 2010. "Austria's CO2 responsibility and the carbon content of its international trade," Ecological Economics, Elsevier, Elsevier, vol. 69(10), pages 2003-2019, August.
  11. Barker, Terry & Junankar, Sudhir & Pollitt, Hector & Summerton, Philip, 2007. "Carbon leakage from unilateral Environmental Tax Reforms in Europe, 1995-2005," Energy Policy, Elsevier, Elsevier, vol. 35(12), pages 6281-6292, December.
  12. Munksgaard, Jesper & Pedersen, Klaus Alsted, 2001. "CO2 accounts for open economies: producer or consumer responsibility?," Energy Policy, Elsevier, Elsevier, vol. 29(4), pages 327-334, March.
  13. Satoshi Nakano & Asako Okamura & Norihisa Sakurai & Masayuki Suzuki & Yoshiaki Tojo & Norihiko Yamano, 2009. "The Measurement of CO2 Embodiments in International Trade: Evidence from the Harmonised Input-Output and Bilateral Trade Database," OECD Science, Technology and Industry Working Papers 2009/3, OECD Publishing.
  14. Wyckoff, Andrew W. & Roop, Joseph M., 1994. "The embodiment of carbon in imports of manufactured products : Implications for international agreements on greenhouse gas emissions," Energy Policy, Elsevier, Elsevier, vol. 22(3), pages 187-194, March.
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