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Optimal Emission Pricing in the Presence of International Spillovers: Decomposing Leakage and Terms-of-Trade Motives

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  • Christoph Böhringer
  • Andreas Lange
  • Thomas F. Rutherford

Abstract

Carbon control policies in OECD countries commonly differentiate emission prices in favor of energy-intensive industries. While leakage provides a efficiency argument for differential emission pricing, the latter may be a disguised beggar-thy-neighbor policy to exploit terms of trade. Using an optimal tax framework, we propose a method to decompose the leakage motive and the terms-of-trade motive for emission price differentiation. We illustrate our method with a quantitative impact assessment of unilateral climate policies for the U.S. and EU economies. We conclude in these instances that complex optimal emission price differentiation does not substantially reduce the overall economic costs of carbon abatement compared with a simple rule of uniform emission pricing.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15899.

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Date of creation: Apr 2010
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Publication status: published as Böhringer, Christoph & Lange, Andreas & Rutherford, Thomas F., 2014. "Optimal emission pricing in the presence of international spillovers: Decomposing leakage and terms-of-trade motives," Journal of Public Economics, Elsevier, vol. 110(C), pages 101-111.
Handle: RePEc:nbr:nberwo:15899

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Cited by:
  1. Jeffrey Grogger & Gordon H. Hanson, 2013. "Attracting Talent: Location Choices of Foreign-Born PhDs in the US," NBER Working Papers 18780, National Bureau of Economic Research, Inc.
  2. Christian Lininger, 2013. "Consumption-Based Approaches in International Climate Policy: An Analytical Evaluation of the Implications for Cost-Effectiveness, Carbon Leakage, and the International Income Distribution," Graz Economics Papers 2013-03, University of Graz, Department of Economics.
  3. Matthias Weitzel & Michael Hübler & Sonja Peterson, 2012. "Fair, Optimal or Detrimental? Environmental vs. Strategic Use of Border Carbon Adjustment," Kiel Working Papers 1792, Kiel Institute for the World Economy.
  4. Kiyono, Kazuharu & Ishikawa, Jota, 2011. "Environmental Management Policy under International Carbon Leakage," CCES Discussion Paper Series 45, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  5. Boeters, Stefan, 2013. "Optimally Differentiated Carbon Prices for Unilateral Climate Policy," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79738, Verein für Socialpolitik / German Economic Association.
  6. Valentina Bosetti & Enrica De Cian, 2013. "A Good Opening: The Key to Make the Most of Unilateral Climate Action," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 56(2), pages 255-276, October.
  7. Habermacher, Florian, 2011. "Optimal Fuel-Specific Carbon Pricing and Time Dimension of Leakage," Economics Working Paper Series 1144, University of St. Gallen, School of Economics and Political Science, revised Jan 2012.
  8. Lanz, Bruno & Rausch, Sebastian, 2011. "General equilibrium, electricity generation technologies and the cost of carbon abatement: A structural sensitivity analysis," Energy Economics, Elsevier, vol. 33(5), pages 1035-1047, September.
  9. Stefan Schleicher & Karl Steininger & Andreas Türk, 2010. "Außenhandel und Umwelt: Was bringt Cancún?," FIW Policy Brief series 009, FIW.
  10. Schinko, Thomas & Bednar-Friedl, Birgit & Steininger, Karl W. & Grossmann, Wolf D., 2014. "Switching to carbon-free production processes: Implications for carbon leakage and border carbon adjustment," Energy Policy, Elsevier, vol. 67(C), pages 818-831.

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