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Will Border Carbon Adjustments Work?

Listed author(s):
  • Winchester Niven

    ()

    (Massachusetts Institute of Technology)

  • Paltsev Sergey

    ()

    (Massachusetts Institute of Technology)

  • Reilly John M

    ()

    (Massachusetts Institute of Technology)

The potential for greenhouse gas (GHG) restrictions in some nations to increased emissions in other nations, or leakage, is a contentious issue in climate change negotiations. We evaluate the impact of border carbon adjustments (BCAs) outlined in the American Clean Energy and Security Act of 2009 (H.R. 2454), using an economy-wide model. For 2025, we find that BCAs reduce leakage by up to two-thirds, but result in only modest reductions in global emissions and significantly reduce welfare. In contrast, BCA-equivalent leakage reductions can be achieved by very small emission charges or efficiency improvements in nations targeted by BCAs, which have negligible welfare effects. We conclude that BCAs are a costly method to reduce leakage, but may be an effective coercion strategy.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 11 (2011)
Issue (Month): 1 (January)
Pages: 1-29

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Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:7
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  1. Jean Pierre Ponssard & Neil Walker, 2008. "EU emissions trading and the cement sector: a spatial competition analysis," Climate Policy, Taylor & Francis Journals, vol. 8(5), pages 467-493, September.
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  7. Roland Ismer & Karsten Neuhoff, 2007. "Border tax adjustment: a feasible way to support stringent emission trading," European Journal of Law and Economics, Springer, vol. 24(2), pages 137-164, October.
  8. Bhagwati, Jagdish & Mavroidis, Petros C., 2007. "Is action against US exports for failure to sign Kyoto Protocol WTO-legal?," World Trade Review, Cambridge University Press, vol. 6(02), pages 299-310, July.
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