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Border tax adjustment and the EU-ETS, a quantitative assessment

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  • Paul Veenendaal
  • Ton Manders

Abstract

If the EU stands alone in adopting climate policy and imposes a strict emissions ceiling, competitiveness of EU energy-intensive sectors will be affected negatively. Relocation of EU energy-intensive firms to countries with a lax regime also leads to carbon leakage. However, when use is made of the opportunities of the Clean Development Mechanism these impacts are very modest. Border tax adjustments (BTAs) to ‘level the playing field’ between domestic and foreign producers may be considered to address the concerns about both competitiveness and carbon leakage. It is far from clear whether these measures are WTO-proof. Simulations show that both an import levy and an export refund restore competitiveness to a certain extent. BTAs may lower the costs for energy-intensive sectors, but induce higher costs for other sectors. This paper uses a general equilibrium model to quantify and assess the implications of a number of policy scenarios.

Suggested Citation

  • Paul Veenendaal & Ton Manders, 2008. "Border tax adjustment and the EU-ETS, a quantitative assessment," CPB Document 171, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:docmnt:171
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    References listed on IDEAS

    as
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    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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