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From theory to practice: determining emissions in traded goods under a border carbon adjustment

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  • Michael A Mehling
  • Robert A Ritz

Abstract

As part of its Green Deal, the European Union has advanced a ‘Carbon Border Adjustment Mechanism’ (CBAM). Reflective of a trend towards greater use of coercive trade measures to advance environmental and other policy objectives, the CBAM would extend carbon pricing to imported goods with the aim of limiting carbon leakage. Theoretical enquiry into this type of policy approach—known as border carbon adjustments (BCAs)—suggests economic and environmental benefits, but typically discounts the role of legal and practical constraints on BCA design and implementation. In this paper, we show why the BCA design commonly featured in past research—basing the adjustment level on default carbon intensities—runs counter to the economic logic of carbon pricing by distorting the incentives for emissions abatement. Requiring producers to demonstrate their actual carbon intensity captures additional economic benefits of carbon pricing and improves the overall legal prospects of a BCA, but adds to its administrative complexity and creates risk of avoidance practices such as ‘resource shuffling’. What emerges is a more nuanced understanding of BCAs that highlights the challenges when transitioning from theory to practice.

Suggested Citation

  • Michael A Mehling & Robert A Ritz, 2023. "From theory to practice: determining emissions in traded goods under a border carbon adjustment," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(1), pages 123-133.
    • Handle: RePEc:oup:oxford:v:39:y:2023:i:1:p:123-133.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grac043
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    References listed on IDEAS

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    Cited by:

    1. Li, Dan & Shen, Bin & Siqin, Tana, 2024. "Resource shuffling in global supply chains under the Clean Competition Act," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 187(C).

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