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Economic and environmental effects of border tax adjustments

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  • Peterson, Everett B.
  • Schleich, Joachim

Abstract

Taxing imports from regions which are not subject to climate policy and subsidizing exports into these regions have recently been proposed to address presumed negative effects of the EU Emissions Trading Scheme (EU ETS) on industry competitiveness and carbon leakage. This paper analyzes the economic and environmental effects of alternative border tax adjustment (BTA) mechanisms using an extended version of the GTAP-E model that explicitly includes domestic trade and transport margins. The BTAs are imposed on regions which have not committed to emission targets under the Kyoto Protocol or which failed to ratify the Kyoto Protocol. The analyses distinguish between effects of the BTAs on the EU15 countries and on the rest of the EU (REU). Likewise, the analyses single out the effects of climate policy with and without BTAs on domestic output changes which are due to changes in import competition and export competitiveness. Implementing a BTA whose power is equal to the percentage change in production costs in the energy-intensive sectors in the EU has different impacts for those sectors in the EU15 countries compared with the REU countries. In the EU15, the BTA effectively neutralizes import competition in the energy-intensive sectors while enhancing the export competitiveness of these sectors. Conversely, in the REU, the BTA is not effective in neutralizing increased import competition or decreased export competitiveness because the majority of trade by the REU is with countries/regions that are not included in the BTA. Overall, implementing a BTA has little effect on the marginal abatement costs of achieving the emission reductions in the Kyoto Protocol and does little in reducing carbon leakage. --

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Bibliographic Info

Paper provided by Fraunhofer Institute for Systems and Innovation Research (ISI) in its series Working Papers "Sustainability and Innovation" with number S1/2007.

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Date of creation: 2007
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Handle: RePEc:zbw:fisisi:s12007

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Cited by:
  1. Li, Aijun & Zhang, Aizhen & Cai, Hongbo & Li, Xingfeng & Peng, Shishen, 2013. "How large are the impacts of carbon-motivated border tax adjustments on China and how to mitigate them?," Energy Policy, Elsevier, vol. 63(C), pages 927-934.
  2. Aaditya Mattoo & Arvind Subramanian & Dominique van der Mensbrugghe & Jianwu He, 2009. "Can Global De-Carbonization Inhibit Developing-Country Industrialization?," Working Papers 188, Center for Global Development.
  3. repec:hal:wpaper:hal-00866444 is not listed on IDEAS
  4. Qin Bao & Ling Tang & ZhongXiang Zhang & Han Qiao & Shouyang Wang, 2011. "Impacts of Border Carbon Adjustments on China’s Sectoral Emissions: Simulations with a Dynamic Computable General Equilibrium Model," Working Papers 2011.93, Fondazione Eni Enrico Mattei.
  5. Schleich, Joachim & Rogge, Karoline S. & Betz, Regina, 2008. "Incentives for energy efficiency in the EU Emissions Trading Scheme," Working Papers "Sustainability and Innovation" S2/2008, Fraunhofer Institute for Systems and Innovation Research (ISI).
  6. Monjon, Stéphanie & Quirion, Philippe, 2011. "Addressing leakage in the EU ETS: Border adjustment or output-based allocation?," Ecological Economics, Elsevier, vol. 70(11), pages 1957-1971, September.
  7. 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.
  8. Löschel, Andreas & Alexeeva-Talebi, Victoria & Mennel, Tim, 2008. "Climate Policy and the Problem of Competitiveness: Border Tax Adjustments or Integrated Emission Trading?," ZEW Discussion Papers 08-061, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Aaditya Mattoo & Arvind Subramanian & Dominique Mensbrugghe & Jianwu He, 2013. "Trade effects of alternative carbon border-tax schemes," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(3), pages 587-609, September.
  10. Fischer, Carolyn & Fox, Alan K., 2009. "Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates," Discussion Papers dp-09-02, Resources For the Future.
  11. Misato Sato & Karsten Neuhoff & Verena Graichen & Katja Schumacher & Felix Matthes, 2013. "Sectors under scrutiny – Evaluation of indicators to assess the risk of carbon leakage in the UK and Germany," Grantham Research Institute on Climate Change and the Environment Working Papers 113, Grantham Research Institute on Climate Change and the Environment.

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