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The Economic And Environmental Effects Of Border Tax Adjustments For Climate Policy

Author

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  • Warwick J. McKibbin
  • Peter J. Wilcoxen

Abstract

For the foreseeable future, climate change policy will be considerably more stringent in some countries than in others. Indeed, the United Nations Framework Convention on Climate Change explicitly states that developed countries must take meaningful action before any obligations are to be placed on developing countries. However, differences in climate policy will lead to differences in energy costs, and to concerns about competitive advantage. In high-cost countries, there will be political pressure to impose border adjustments, or “green tariffs”, on imports from countries with little or no climate policy and low energy costs. The adjustments would be based on the carbon emissions associated with production of each imported product, and would be intended to match the cost increase that would have occurred had the exporting country adopted a climate policy similar to that of the importing country. In this paper, we estimate how large such tariffs would be in practice, and then examine their economic and environmental effects using G-Cubed, a detailed multi-sector, multi-country model of the world economy. We find that the tariffs would be small on most traded goods, would reduce leakage of emissions reduction very modestly, and would do little to protect import-competing industries. We conclude that the benefits produced by border adjustments would be too small to justify their administrative complexity or their deleterious effects on international trade.

Suggested Citation

  • Warwick J. McKibbin & Peter J. Wilcoxen, 2009. "The Economic And Environmental Effects Of Border Tax Adjustments For Climate Policy," CAMA Working Papers 2009-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2009-09
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2017-02/9_mckibbin_wilcoxen_2009.pdf
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    References listed on IDEAS

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    1. Arik Levinson & M. Scott Taylor, 2008. "Unmasking The Pollution Haven Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 223-254, February.
    2. Ben Lockwood & John Whalley, 2010. "Carbon-motivated Border Tax Adjustments: Old Wine in Green Bottles?," The World Economy, Wiley Blackwell, vol. 33(6), pages 810-819, June.
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    Citations

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    Cited by:

    1. Christoph Bohringer & Jared Carbone & Thomas F. Rutherford, "undated". "Embodied Carbon Tariffs," Working Papers 2013-24, Department of Economics, University of Calgary, revised 11 Oct 2013.
    2. Ian Parry, 2013. "Fiscal instruments for climate finance," Chapters,in: Handbook on Energy and Climate Change, chapter 16, pages 377-402 Edward Elgar Publishing.
    3. repec:spr:jecstr:v:6:y:2017:i:1:d:10.1186_s40008-017-0091-x is not listed on IDEAS
    4. Nicole A. MATHYS & Jaime DE MELO, 2010. "Trade and Climate Change: The Challenges Ahead," Working Papers P14, FERDI.
    5. Ngo Van Long, 2014. "The Green Paradox in Open Economies," CESifo Working Paper Series 4639, CESifo Group Munich.
    6. Ling Tang & Qin Bao & ZhongXiang Zhang & Shouyang Wang, 2015. "Carbon-based border tax adjustments and China’s international trade: analysis based on a dynamic computable general equilibrium model," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(2), pages 329-360, April.
    7. Zhou, Xin & Yano, Takashi & Kojima, Satoshi, 2013. "Proposal for a national inventory adjustment for trade in the presence of border carbon adjustment: Assessing carbon tax policy in Japan," Energy Policy, Elsevier, vol. 63(C), pages 1098-1110.
    8. Jean-Marc Burniaux & Joaquim Oliveira Martins, 2012. "Carbon leakages: a general equilibrium view," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 49(2), pages 473-495, February.
    9. Böhringer, Christoph & Carbone, Jared C. & Rutherford, Thomas F., 2012. "Unilateral climate policy design: Efficiency and equity implications of alternative instruments to reduce carbon leakage," Energy Economics, Elsevier, vol. 34(S2), pages 208-217.
    10. Li, Aijun & Zhang, Aizhen, 2012. "Will carbon motivated border tax adjustments function as a threat?," Energy Policy, Elsevier, vol. 47(C), pages 81-90.
    11. Frankel, Jeffrey, 2008. "Global Environmental Policy and Global Trade Policy," Working Paper Series rwp08-058, Harvard University, John F. Kennedy School of Government.
    12. Kala Krishna, 2011. "Limiting Emissions and Trade: Some Basic Ideas," NBER Chapters,in: The Design and Implementation of U.S. Climate Policy, pages 53-61 National Bureau of Economic Research, Inc.
    13. Dong, Yanli & Ishikawa, Masanobu & Hagiwara, Taiji, 2015. "Economic and environmental impact analysis of carbon tariffs on Chinese exports," Energy Economics, Elsevier, vol. 50(C), pages 80-95.
    14. Daniel Gros, 2009. "Global Welfare Implications of Carbon Border Taxes," CESifo Working Paper Series 2790, CESifo Group Munich.
    15. 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.
    16. Ghosh, Madanmohan & Luo, Deming & Siddiqui, Muhammad Shahid & Zhu, Yunfa, 2012. "Border tax adjustments in the climate policy context: CO2 versus broad-based GHG emission targeting," Energy Economics, Elsevier, vol. 34(S2), pages 154-167.
    17. Bao, Qin & Tang, Ling & Zhang, ZhingXiang & Qiao, Han & Wang, Shouyang, 2012. "Impact of Border Carbon Adjustments on China’s Sectoral Emissions: Simulations with a Dynamic Computable General Equilibirum Model," Working Papers 249391, Australian National University, Centre for Climate Economics & Policy.

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