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The role of border carbon adjustment in unilateral climate policy: Overview of an Energy Modeling Forum study (EMF 29)

  • Böhringer, Christoph
  • Balistreri, Edward J.
  • Rutherford, Thomas F.

Issues of emission leakage and competitiveness are at the fore of the climate policy debate in all the major economies implementing or proposing to implement substantial emission cap-and-trade programs. Unilateral climate policy cannot directly impose emission prices on foreign sources, but it can complement domestic emission pricing with border carbon adjustment to reduce leakage and increase global cost-effectiveness. While border carbon adjustment has a theoretical efficiency rationale, its practical implementation is subject to serious caveats. This article summarizes the results of an Energy Modeling Forum study (EMF 29) on the efficiency and distributional impacts of border carbon adjustment. We find that border carbon adjustment can effectively reduce leakage and ameliorate adverse impacts on energy-intensive and trade-exposed industries of unilaterally abating countries. However, the scope for global cost savings is small. The main effect of border carbon adjustment is to shift the economic burden of emission reduction to non-abating countries through implicit changes in international prices.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): S2 ()
Pages: S97-S110

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:s2:p:s97-s110
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  1. 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.
  2. Fischer, Carolyn & Fox, Alan K., 2012. "Climate policy and fiscal constraints: Do tax interactions outweigh carbon leakage?," Energy Economics, Elsevier, vol. 34(S2), pages S218-S227.
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  8. Hoel, M., 1989. "Global Environmental Problems: The Effects Of Unilateral Actions Taken By One Country," Memorandum 11/1989, Oslo University, Department of Economics.
  9. Alexeeva-Talebi, Victoria & Böhringer, Christoph & Löschel, Andreas & Voigt, Sebastian, 2012. "The value-added of sectoral disaggregation: Implications on competitive consequences of climate change policies," ZEW Discussion Papers 12-069, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. 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 S154-S167.
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  12. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
  13. 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 S208-S217.
  14. Christoph Böhringer & Brita Bye & Taran Fæhn & Knut Einar Rosendahl, 2012. "Alternative Designs for Tariffs on Embodied Carbon: A Global Cost-Effectiveness Analysis," Working Papers V-345-12, University of Oldenburg, Department of Economics, revised Jun 2012.
  15. 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.
  16. Caron, Justin, 2012. "Estimating carbon leakage and the efficiency of border adjustments in general equilibrium — Does sectoral aggregation matter?," Energy Economics, Elsevier, vol. 34(S2), pages S111-S126.
  17. Springmann, Marco, 2012. "A look inwards: Carbon tariffs versus internal improvements in emissions-trading systems," Energy Economics, Elsevier, vol. 34(S2), pages S228-S239.
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