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

Author

Listed:
  • Paul Veenendaal

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • 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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    File URL: http://www.cpb.nl/sites/default/files/publicaties/download/border-tax-adjustment-and-eu-ets-quantitative-assessment.pdf
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    References listed on IDEAS

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    1. Michel Elzen & Marcel Berk & Paul Lucas & Patrick Criqui & Alban Kitous, 2006. "Multi-Stage: A Rule-Based Evolution of Future Commitments under the Climate Change Convention," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 6(1), pages 1-28, March.
    2. Mustafa H. Babiker & Thomas F. Rutherford, 2005. "The Economic Effects of Border Measures in Subglobal Climate Agreements," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 99-126.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jared C. Carbone & Nicholas Rivers, 2014. "Climate policy and competitiveness: Policy guidance and quantitative evidence," Working Papers 2014-05, Colorado School of Mines, Division of Economics and Business.
    2. 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.
    3. Paul de Boer & Richard Paap, 2009. "Testing non-nested demand relations: linear expenditure system versus indirect addilog," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 63(3), pages 368-384.
    4. Vale, Petterson Molina, 2016. "The changing climate of climate change economics," Ecological Economics, Elsevier, vol. 121(C), pages 12-19.
    5. Alessandro Antimiani & Valeria Costantini & Chiara Martini & Luca Salvatici, 2011. "Cooperative and non-cooperative solutions to carbon leakage," Departmental Working Papers of Economics - University 'Roma Tre' 0136, Department of Economics - University Roma Tre.
    6. Francesco Bosello & Marinella Davide & Isabella Alloisio, 2016. "Economic Implications of EU Mitigation Policies: Domestic and International Effects," Working Papers 2016.34, Fondazione Eni Enrico Mattei.
    7. Daniel Gros, 2009. "Global Welfare Implications of Carbon Border Taxes," CESifo Working Paper Series 2790, CESifo Group Munich.
    8. Bao, Qin & Tang, Ling & Zhang, ZhongXiang & Wang, Shouyang, 2013. "Impacts of border carbon adjustments on China's sectoral emissions: Simulations with a dynamic computable general equilibrium model," China Economic Review, Elsevier, vol. 24(C), pages 77-94.
    9. Parrado, Ramiro & De Cian, Enrica, 2014. "Technology spillovers embodied in international trade: Intertemporal, regional and sectoral effects in a global CGE framework," Energy Economics, Elsevier, vol. 41(C), pages 76-89.
    10. Hübler, Michael, 2012. "Carbon tariffs on Chinese exports: Emissions reduction, threat, or farce?," Energy Policy, Elsevier, vol. 50(C), pages 315-327.
    11. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's Greenhouse Gas Emissions," Research Series, Economic and Social Research Institute (ESRI), number RS9.
    12. Rahel Aichele & Gabriel Felbermayr, 2013. "Estimating the Effects of Kyoto on Bilateral Trade Flows Using Matching Econometrics," The World Economy, Wiley Blackwell, vol. 36(3), pages 303-330, March.
    13. Harry Wilting & Kees Vringer, 2009. "CARBON AND LAND USE ACCOUNTING FROM A PRODUCER'S AND A cONSUMER'S PERSPECTIVE - AN EMPIRICAL EXAMINATION COVERING THE WORLD," Economic Systems Research, Taylor & Francis Journals, vol. 21(3), pages 291-310.
    14. Monjon, Stéphanie & Quirion, Philippe, 2011. "Addressing leakage in the EU ETS: Border adjustment or output-based allocation?," Ecological Economics, Elsevier, vol. 70(11), pages 1957-1971, September.
    15. Huifang Tian & John Whalley, 2015. "Developing Countries And The Unfccc Process: Some Simulations From An Armington Extended Climate Model," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 1-22, November.
    16. Hübler, Michael, 2009. "Can carbon based import tariffs effectively reduce carbon emissions?," Kiel Working Papers 1565, Kiel Institute for the World Economy (IfW).
    17. repec:ces:ifodic:v:10:y:2012:i:3:p:19069672 is not listed on IDEAS
    18. Jean Fouré & Houssein Guimbard & Stéphanie Monjon, 2013. "Border Carbon Ajustment in Europe and Trade Retaliation: What would be the Cost for European Union?," Working Papers 2013-34, CEPII research center.
    19. van den Broek, Machteld & Veenendaal, Paul & Koutstaal, Paul & Turkenburg, Wim & Faaij, André, 2011. "Impact of international climate policies on CO2 capture and storage deployment: Illustrated in the Dutch energy system," Energy Policy, Elsevier, vol. 39(4), pages 2000-2019, April.
    20. Peter Egger & Sergey Nigai, 2015. "Energy Demand and Trade in General Equilibrium," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(2), pages 191-213, February.
    21. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's GHG Emissions [Instrument choice: the pros and cons of alternative policy instruments]," Papers WP284, Economic and Social Research Institute (ESRI).
    22. Antimiani, Alessandro & Costantini, Valeria & Martini, Chiara & Salvatici, Luca & Tommasino, Maria Cristina, 2013. "Assessing alternative solutions to carbon leakage," Energy Economics, Elsevier, vol. 36(C), pages 299-311.
    23. Venmans, Frank, 2012. "A literature-based multi-criteria evaluation of the EU ETS," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(8), pages 5493-5510.
    24. Fouré, Jean & Guimbard, Houssein & Monjon, Stéphanie, 2016. "Border carbon adjustment and trade retaliation: What would be the cost for the European Union?," Energy Economics, Elsevier, vol. 54(C), pages 349-362.

    More about this item

    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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