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Towards a Just and Cost-Effective Climate Policy: On the relevance and implications of deciding between a Production versus Consumption Based Approach

Author

Listed:
  • Karl Steininger

    () ( Karl-Franzens University of Graz)

  • Christian Lininger

    () ( Karl-Franzens University of Graz)

  • Susanne Droege

    (SWP - German Institute for International and Security Affairs)

  • Dominic Roser

    ( Karl-Franzens University of Graz)

  • Luke Tomlinson

    (University of Oxford)

Abstract

The bottom-up national approaches to implement global climate policy under the current United Nations scheme raise concerns about carbon leakage and distributive justice. To limit these concerns, some propose switching to a consumption based emission accounting principle and implementing an associated policy reorientation. We analyse the potential merits of such a switch to a consumption-based approach, in the context of unilateral climate policies implemented by a border adjustment for the carbon content of imports and exports. First, we look into the relationship between the accounting principle and justice considerations. We distinguish the Responsibility Question (Do consumers' or producers' choices bring the emissions about?) and the Policy Base Question (Should consumption or production serve as the policy base?). Second, we investigate whether following a consumption- versus production-based policy implies a difference in terms of costeffectiveness in achieving the environmental target. We find that consumers and producers are jointly responsible for emissions. We also find that from the perspective of justice this does not settle the question whether consumption or production ought to serve as the climate policy base. Rather, this depends on the distributive consequences of switching to consumption-based accounting. We find that (global) costeffectiveness is currently higher when unilateral climate policy by industrialized countries is consumption-based, and accompanied by clean technology transfer. If implemented in terms of border carbon adjustments, justice considerations suggest channeling import tax revenues to developing and emerging economies. We also find that the carbon border adjustment switch need not include export rebates, if these are difficult on political grounds.

Suggested Citation

  • Karl Steininger & Christian Lininger & Susanne Droege & Dominic Roser & Luke Tomlinson, 2012. "Towards a Just and Cost-Effective Climate Policy: On the relevance and implications of deciding between a Production versus Consumption Based Approach," Graz Economics Papers 2012-06, University of Graz, Department of Economics.
  • Handle: RePEc:grz:wpaper:2012-06
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    References listed on IDEAS

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    More about this item

    Keywords

    post 2012 climate policies; CBDR; competitiveness; carbon leakage; border carbon adjustments;

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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