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

  • 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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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): S2 ()
Pages: S208-S217

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

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