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Unilateral climate policy design: Efficiency and equity implications of alternative instruments to reduce carbon leakage

Listed author(s):
  • Böhringer, Christoph
  • Carbone, Jared C.
  • Rutherford, Thomas F.

Global cost-effectiveness of unilateral emission abatement can be seriously hampered by carbon leakage. We assess three widely discussed proposals for leakage reduction: carbon-motivated border tax adjustments, industry exemptions from carbon regulation, and output-based allocation of emission allowances. We find that none of these measures amounts to a “magic bullet” when both efficiency and equity criteria matter. Compared to unilateral emission pricing alone, border carbon adjustments are most effective in leakage reduction and promotion of global cost-effectiveness but can markedly exacerbate regional inequality; exemptions and output-based allocation tend to avoid distributional pitfalls but are less effective in leakage reduction and global cost savings; exemptions may even decrease global cost-effectiveness of unilateral emission abatement.

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File URL: http://www.sciencedirect.com/science/article/pii/S0140988312002253
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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): S2 ()
Pages: 208-217

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:s2:p:s208-s217
DOI: 10.1016/j.eneco.2012.09.011
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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  1. Aaditya Mattoo & Arvind Subramanian & Dominique van der Mensbrugghe & Jianwu He, 2009. "Reconciling Climate Change and Trade Policy," Working Papers 189, Center for Global Development.
  2. 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.
  3. Böhringer, Christoph & Fischer, Carolyn & Rosendahl, Knut Einar, 2014. "Cost-effective unilateral climate policy design: Size matters," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 318-339.
  4. Warwick J. McKibbin & Peter J. Wilcoxen, 2009. "The Economic And Environmental Effects Of Border Tax Adjustments For Climate Policy," CAMA Working Papers 2009-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. Christoph Bohringer & Jared Carbone & Thomas F. Rutherford, "undated". "Embodied Carbon Tariffs," Working Papers 2013-24, Department of Economics, University of Calgary, revised 11 Oct 2013.
  6. Böhringer, Christoph & Lange, Andreas & Rutherford, Thomas F., 2014. "Optimal emission pricing in the presence of international spillovers: Decomposing leakage and terms-of-trade motives," Journal of Public Economics, Elsevier, vol. 110(C), pages 101-111.
  7. Boehringer Christoph & Fischer Carolyn & Rosendahl Knut Einar, 2010. "The Global Effects of Subglobal Climate Policies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-35, December.
  8. Fischer, Carolyn & Fox, Alan K., 2009. "Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates," Discussion Papers dp-09-02, Resources For the Future.
  9. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
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  11. Hoel, Michael, 1996. "Should a carbon tax be differentiated across sectors?," Journal of Public Economics, Elsevier, vol. 59(1), pages 17-32, January.
  12. 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, vol. 0(Number 4), pages 99-126.
  13. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
  14. Christoph Böhringer & Thomas F. Rutherford, 2010. "The Costs of Compliance: A CGE Assessment of Canada's Policy Options under the Kyoto Protocol," The World Economy, Wiley Blackwell, vol. 33(2), pages 177-211, 02.
  15. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  16. Dissou, Yazid & Eyland, Terry, 2011. "Carbon control policies, competitiveness, and border tax adjustments," Energy Economics, Elsevier, vol. 33(3), pages 556-564, May.
  17. Christoph Böhringer & Thomas Rutherford, 2002. "Carbon Abatement and International Spillovers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(3), pages 391-417, July.
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