The Strategic Value of Carbon Tariffs
AbstractUnilateral carbon policies are inefficient due to the fact that they generally involve emission reductions in countries with high marginal abatement costs and because they are subject to carbon leakage. In this paper, we ask whether the use of carbon tariffs—tariffs on the carbon embodied in imported goods—might lower the cost of achieving a given reduction in world emissions. Specifically, we explore the role tariffs might play as an inducement to unregulated countries adopting emission controls of their own. We use an applied general equilibrium model to generate the payoffs of a policy game. In the game, a coalition of countries regulates its own emissions and chooses whether or not to employ carbon tariffs against unregulated countries. Unregulated countries may respond by adopting emission regulations of their own, retaliating against the carbon tariffs by engaging in a trade war, or by pursuing no policy at all. In the unique Nash equilibrium produced by this game, the use of carbon tariffs by coalition countries is credible. China and Russia respond by adopting binding abatement targets to avoid being subjected to them. Other unregulated countries retaliate. Cooperation by China and Russia lowers the global welfare cost of achieving a 10% reduction in global emissions by half relative to the case where coalition countries undertake all of this abatement on their own.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by ZenTra - Center for Transnational Studies in its series ZenTra Working Papers in Transnational Studies with number 26 / 2014.
Length: 41 pages
Date of creation: Oct 2013
Date of revision: Jan 2014
climate policy; border tax adjustments; carbon leakage; strategic retaliation; applied general equilibrium model;
Other versions of this item:
- Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2013. "The Strategic Value of Carbon Tariffs," CESifo Working Paper Series 4482, CESifo Group Munich.
- Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2014. "The Strategic Value of Carbon Tariffs," Working Papers V-360-14, University of Oldenburg, Department of Economics, revised Jan 2014.
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-17 (All new papers)
- NEP-CIS-2014-01-17 (Confederation of Independent States)
- NEP-ENE-2014-01-17 (Energy Economics)
- NEP-ENV-2014-01-17 (Environmental Economics)
- NEP-INT-2014-01-17 (International Trade)
- NEP-REG-2014-01-17 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2013.
"Embodied Carbon Tariffs,"
ZenTra Working Papers in Transnational Studies, ZenTra - Center for Transnational Studies
25 / 2014, ZenTra - Center for Transnational Studies, revised Jan 2014.
- Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2011. "Embodied Carbon Tariffs," NBER Working Papers 17376, National Bureau of Economic Research, Inc.
- Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2011. "Embodied Carbon Tariffs," Working Papers V-340-11, University of Oldenburg, Department of Economics, revised Sep 2011.
- Graham, Paul & Thorpe, Sally & Hogan, Lindsay, 1999. "Non-competitive market behaviour in the international coking coal market," Energy Economics, Elsevier, Elsevier, vol. 21(3), pages 195-212, June.
- Mustafa H. Babiker & Thomas F. Rutherford, 2005. "The Economic Effects of Border Measures in Subglobal Climate Agreements," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 99-126.
- Warwick J. McKibbin & Peter J. Wilcoxen, 1997. "A Better Way to Slow Global Climate Change," Economics and Environment Network Working Papers, Australian National University, Economics and Environment Network 9702, Australian National University, Economics and Environment Network.
- Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, Elsevier, vol. 24(6), pages 557-576, November.
- Mattoo, Aaditya & Subramanian, Arvind & van der Mensbrugghe, Dominique & He, Jianwu, 2009.
"Reconciling climate change and trade policy,"
Policy Research Working Paper Series
5123, The World Bank.
- Aaditya Mattoo & Arvind Subramanian & Dominique van der Mensbrugghe & Jianwu He, 2009. "Reconciling Climate Change and Trade Policy," Working Paper Series, Peterson Institute for International Economics WP09-15, Peterson Institute for International Economics.
- Aaditya Mattoo & Arvind Subramanian & Dominique van der Mensbrugghe & Jianwu He, 2009. "Reconciling Climate Change and Trade Policy," Working Papers, Center for Global Development 189, Center for Global Development.
- Azusa OKAGAWA & Kanemi BAN, 2008. "Estimation of substitution elasticities for CGE models," Discussion Papers in Economics and Business 08-16, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
- Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
- Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
- Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
- Christoph Bohringer & Jared Carbone & Thomas F. Rutherford, 2013. "Embodied Carbon Tariffs," Working Papers 2013-24, Department of Economics, University of Calgary, revised 11 Oct 2013.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Finn Marten Koerner).
If references are entirely missing, you can add them using this form.