Carbon tariffs for financing clean development

In order to address carbon leakage and preserve the competitiveness of domestic industries, some industrialized Annex-I countries have proposed to levy carbon tariffs on energy-intensive imports from developing non-Annex-I countries which have not agreed to binding emissions reductions. This could have detrimental welfare impacts, especially on those developing countries, and might not lead to significant reductions in leakage. A possible remedy recently proposed is to use the revenues from carbon tariffs for clean-development financing in the exporting nonAnnex-I countries. This study analyses this policy proposal by using an energyeconomic model of the global economy. It supplements the model by marginalabatement-cost curves and bottom-up information on abatement potentials to represent the emission-reduction effects of clean-development financing. The results indicate that US$3.5-24.5 billion (with a central value of US$9.8 billion) could be raised for clean-development financing. This financing could reduce non-Annex-I countries’ emissions by 5-15%, while still leaving funds available for other purposes, such as adaptation. Recycling the revenues from carbon tariffs back to the exporting 2 country could alleviate some of the negative welfare impacts associated with carbon tariffs, but a net negative impact especially on developing countries' welfare and GDP levels would remain.