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Climate Policy, Carbon Leakage and Competitiveness: How Might Border Tax Adjustments Help?

  • Sheldon, Ian M.
  • McCorriston, Steve
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    In this paper, analysis is presented relating to the impact of border tax adjustments for climate policy on the international competitiveness of energy-intensive industries, and the related problem of carbon leakage. While many of the economic and legal issues are not particularly new, climate policy does present some possible twists to the analysis of border tax adjustments when vertically-related markets can be characterized as a successive oligopoly. Specifically, an appropriate border tax adjustment will depend on the incidence of a domestic carbon tax, the nature of competition in upstream and downstream sectors, as well as the basis for assessing the trade neutrality of any border tax adjustment. If trade neutrality is defined in terms of market volume, even though carbon leakage is reduced, domestic firm competitiveness cannot be maintained. This compares to defining trade neutrality in terms of market share, which results in domestic competitiveness being maintained and global carbon emissions being reduced.

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    File URL: http://purl.umn.edu/103207
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    Paper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 103207.

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    Date of creation: 2011
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    Handle: RePEc:ags:aaea11:103207
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    1. Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi-unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114.
    2. Ottar Mæstad, 2001. "Efficient Climate Policy with Internationally Mobile Firms," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(3), pages 267-284, July.
    3. van Asselt, Harro & Brewer, Thomas, 2010. "Addressing competitiveness and leakage concerns in climate policy: An analysis of border adjustment measures in the US and the EU," Energy Policy, Elsevier, vol. 38(1), pages 42-51, January.
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