Climate Policy and the Problem of Competitiveness: Border Tax Adjustments or Integrated Emission Trading?
AbstractIn the absence of an international agreement on climate policy, unilateral carbon abatement creates two problems: It tends to have a detrimental effect on domestic competitiveness, and it leads to an increase in carbon emissions abroad (leakage). This paper analyses two policies that have recently been proposed to mitigate these problems: Border tax adjustments (BTA) and integrated emission trading (IET). The former policy levies a quantity-based, the latter an emission based duty on imports from non-abating countries. In a stylised two-country model we demonstrate that the policies address both problems. However, BTA protects domestic competitiveness more effectively, while IET achieves a greater reduction in foreign emissions. A computational general equilibrium analysis of the unilateral abatement policy adopted by the European Union confirms our theoretical insights for the sectors covered by the offsetting measures. However, the implications for the competitiveness of noncovered sectors are negative. These two effects constitute the central trade-off in the implementation of both policies. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 08-061.
Date of creation: 2008
Date of revision:
Border Tax Adjustments; Climate Policy; Competitiveness; Emission Trading;
Find related papers by JEL classification:
- F18 - International Economics - - Trade - - - Trade and Environment
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-21 (All new papers)
- NEP-CMP-2008-10-21 (Computational Economics)
- NEP-ENE-2008-10-21 (Energy Economics)
- NEP-ENV-2008-10-21 (Environmental Economics)
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