Ambitious unilateral EU environmental policy has raised concerns about adverse competitiveness implications for European energy-intensive and export-oriented sectors. We analyze the economic and environmental implications of two different measures to address these concerns in the EU Emission Trading Scheme (EU ETS): border tax adjustments (BTA) and the Clean Development Mechanism (CDM). Numerical simulations with a computable general equilibrium model of the global economy demonstrate that alternative BTA regimes are suitable to alleviate adverse competiveness implications of unilateral European climate policy on energy-intensive and export-oriented industries. The regulatory protection of these industries via subsidies for EU exporters and tariffs for non-EU importers goes, however, at the expense of sectors which are excluded from the EU ETS. We show that the choice of alternative benchmarks (i.e. carbon intensities) for the level of BTA substantially affects these competitiveness implications. The simulations further indicate that limited access to low-cost emission abatement via the CDM in the EU ETS alleviates adverse competitiveness impacts to a comparable extent as the most ambitious BTA scheme. Increasing “where-flexibility” of emission abatement thus represents an attractive market-based alternative to the application of border tax adjustments in unilateral climate policy. --
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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number
08-095.
Find related papers by JEL classification: 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 Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy F18 - International Economics - - Trade - - - Trade and Environment
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