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Carbon control policies, competitiveness, and border tax adjustments

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  • Dissou, Yazid
  • Eyland, Terry

Abstract

Several propositions have recently been made to use border tax adjustments (BTAs) to address the loss of competitiveness induced by unilateral stringent domestic pollution control policies. This paper explores in a general equilibrium framework the sectoral and welfare implications of a unilateral domestic GHG control policy combined with a BTA scheme. Using the Canadian economy as an illustration, we assess the extent to which BTAs achieve their objectives and analyze the impacts of different methods of recycling the BTA proceeds to support domestic industries. Our simulation results suggest that imposing BTAs on the imports of non-fossil and energy-intensive products reduces or removes completely the negative competitiveness impacts that domestic industries suffer from. The use of the proceeds of the BTAs to support domestic energy-intensive industries improves their competitiveness and, more importantly, in some cases, overprotects them, as it allows them to even increase their output in comparison to the benchmark without emissions control. Our results also shed light on the existence of heterogeneity in the composition of energy-intensive industries as far as the recycling method of the BTA proceeds is concerned. Energy-intensive industries that are more oriented toward the domestic market are better off with the recycling of the BTA proceeds towards gross output than towards exports alone. Finally, abstracting from the environmental benefits of reduced emissions, we find that a BTA entails a higher welfare cost to households.

Suggested Citation

  • Dissou, Yazid & Eyland, Terry, 2011. "Carbon control policies, competitiveness, and border tax adjustments," Energy Economics, Elsevier, vol. 33(3), pages 556-564, May.
  • Handle: RePEc:eee:eneeco:v:33:y:2011:i:3:p:556-564
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Zhang, Zhong Xiang, 2012. "Competitiveness and Leakage Concerns and Border Carbon Adjustments," International Review of Environmental and Resource Economics, now publishers, vol. 6(3), pages 225-287, December.
    2. repec:gam:jsusta:v:9:y:2017:i:7:p:1247-:d:104856 is not listed on IDEAS
    3. repec:gam:jsusta:v:9:y:2017:i:6:p:1028-:d:101610 is not listed on IDEAS
    4. Ling Tang & Qin Bao & ZhongXiang Zhang & Shouyang Wang, 2015. "Carbon-based border tax adjustments and China’s international trade: analysis based on a dynamic computable general equilibrium model," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(2), pages 329-360, April.
    5. repec:wsi:apjorx:v:34:y:2017:i:01:n:s0217595917400048 is not listed on IDEAS
    6. English, J. & Niet, T. & Lyseng, B. & Palmer-Wilson, K. & Keller, V. & Moazzen, I. & Pitt, L. & Wild, P. & Rowe, A., 2017. "Impact of electrical intertie capacity on carbon policy effectiveness," Energy Policy, Elsevier, vol. 101(C), pages 571-581.
    7. Böhringer, Christoph & Carbone, Jared C. & Rutherford, Thomas F., 2012. "Unilateral climate policy design: Efficiency and equity implications of alternative instruments to reduce carbon leakage," Energy Economics, Elsevier, vol. 34(S2), pages 208-217.
    8. Li, Aijun & Zhang, Aizhen, 2012. "Will carbon motivated border tax adjustments function as a threat?," Energy Policy, Elsevier, vol. 47(C), pages 81-90.
    9. Alain-Désiré Nimubona & Horatiu Rus, 2015. "Green Technology Transfers and Border Tax Adjustments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(1), pages 189-206, September.
    10. Sakamoto, Tomoyuki & Managi, Shunsuke, 2015. "Energy pricing impact on domestic economy under recent climate action," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 150-162.
    11. Jared C. Carbone & Nicholas Rivers, 2014. "Climate policy and competitiveness: Policy guidance and quantitative evidence," Working Papers 2014-05, Colorado School of Mines, Division of Economics and Business.
    12. Henry Thompson, 2013. "Energy Tariffs, Production, and Income in a Small Open Economy," Auburn Economics Working Paper Series auwp2013-11, Department of Economics, Auburn University.
    13. Bao, Qin & Tang, Ling & Zhang, ZhongXiang & Wang, Shouyang, 2013. "Impacts of border carbon adjustments on China's sectoral emissions: Simulations with a dynamic computable general equilibrium model," China Economic Review, Elsevier, vol. 24(C), pages 77-94.
    14. Eyland, Terry & Zaccour, Georges, 2014. "Carbon tariffs and cooperative outcomes," Energy Policy, Elsevier, vol. 65(C), pages 718-728.
    15. Wang, Qiang & Li, Rongrong, 2015. "Cheaper oil: A turning point in Paris climate talk?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1186-1192.
    16. Paola Rocchi & Iñaki Arto & Jordi Roca & Mònica Serrano, 2015. "Carbon-motivated border tax adjustment: a proposal for the EU," UB Economics Working Papers 2015/327, Universitat de Barcelona, Facultat d'Economia i Empresa, UB Economics.
    17. Yazid Dissou and Muhammad Shahid Siddiqui, 2013. "Regional Trade Agreements, Emissions Bubbles, and Carbon Tariff Harmonization," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    18. Jan T. Mizgajski, 2013. "CO2 Embodied in Trade between Poland and Selected Countries," Journal of Economic Development, Environment and People, Alliance of Central-Eastern European Universities, vol. 2(4), pages 48-60, September.
    19. Ghosh, Madanmohan & Luo, Deming & Siddiqui, Muhammad Shahid & Zhu, Yunfa, 2012. "Border tax adjustments in the climate policy context: CO2 versus broad-based GHG emission targeting," Energy Economics, Elsevier, vol. 34(S2), pages 154-167.
    20. Bao, Qin & Tang, Ling & Zhang, ZhingXiang & Qiao, Han & Wang, Shouyang, 2012. "Impact of Border Carbon Adjustments on China’s Sectoral Emissions: Simulations with a Dynamic Computable General Equilibirum Model," Working Papers 249391, Australian National University, Centre for Climate Economics & Policy.
    21. Gevrek, Z.Eylem & Uyduranoglu, Ayse, 2015. "Public preferences for carbon tax attributes," Ecological Economics, Elsevier, vol. 118(C), pages 186-197.
    22. Böhringer, Christoph & Garcia-Muros, Xaquin & Cazcarro, Ignacio & Arto, Iñaki, 2017. "The efficiency cost of protective measures in climate policy," Energy Policy, Elsevier, vol. 104(C), pages 446-454.
    23. Thompson, Henry, 2014. "Energy tariffs in a small open economy," Energy Economics, Elsevier, vol. 44(C), pages 63-67.
    24. Sakai, Marco & Barrett, John, 2016. "Border carbon adjustments: Addressing emissions embodied in trade," Energy Policy, Elsevier, vol. 92(C), pages 102-110.

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