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Measures to Enhance the Effectiveness of International Climate Agreements: The Case of Border Carbon Adjustments

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  • Alaa Al Khourdajie

    (Centre for Environmental Policy, Imperial College London, UK)

  • Michael Finus

    (University of Graz, Austria)

Abstract

Actions on climate change which are not supported by all countries are not very effective. However, full participation in a global climate treaty with meaningful emission reductions is difficult to achieve. The non-excludability of the public good mitigation provides an incentive to abstain from global action. Moreover, carbon leakage renders it unattractive to join a treaty without full participation. We study whether and under which conditions border carbon adjustments (BCAs) can mitigate free-riding and reduce carbon leakage in a simple strategic trade model. We show that BCAs can lead to large stable climate agreements, including full participation, associated with large global welfare gains if treaties do not restrict membership (open membership), as this is typical for environmental agreements. We caution against restricting accession to treaties (exclusive membership), as this is typical for trade agreements, which may serve individual but not global interests.

Suggested Citation

  • Alaa Al Khourdajie & Michael Finus, 2020. "Measures to Enhance the Effectiveness of International Climate Agreements: The Case of Border Carbon Adjustments," Graz Economics Papers 2020-04, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2020-04
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    1. Hagen, Achim & Schneider, Jan, 2021. "Trade sanctions and the stability of climate coalitions," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    2. Schopf, Mark, 2020. "Coalition Formation with Border Carbon Adjustment," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224560, Verein für Socialpolitik / German Economic Association.
    3. Felbermayr, Gabriel & Peterson, Sonja & Wanner, Joschka, 2022. "The impact of trade and trade policy on the environment and the climate: A review," Kiel Working Papers 2233, Kiel Institute for the World Economy (IfW Kiel).
    4. Fabio Antoniou & Panos Hatzipanayotou & Nikos Tsakiris, 2023. "Regulatory Stringency and Emission Leakage Mitigation," DEOS Working Papers 2302, Athens University of Economics and Business.
    5. Liming Hong & Wei Huang & Sajid Anwar & Xiaofeng Lv, 2023. "North–South asymmetry, unilateral environmental policy and carbon tariffs," Pacific Economic Review, Wiley Blackwell, vol. 28(2), pages 241-266, May.
    6. Lewis C. King & Jeroen C. J. M. Bergh, 2021. "Potential carbon leakage under the Paris Agreement," Climatic Change, Springer, vol. 165(3), pages 1-19, April.
    7. Soham Baksi & Amrita Ray Chaudhuri, 2020. "Imperfect Competition, Border Carbon Adjustments, and Stability of a Global Climate Agreement," Departmental Working Papers 2020-03, The University of Winnipeg, Department of Economics.
    8. Catia Montagna & Avanti Nisha Pinto & Nikolaos Vlassis, 2020. "Welfare and Trade Effects of International Environmental Agreements," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(2), pages 331-345, July.
    9. Bård Harstad, 2020. "Trade and Trees: How Trade Agreements Can Motivate Conservation Instead of Depletion," CESifo Working Paper Series 8569, CESifo.
    10. Colombo, Luca & Labrecciosa, Paola & Van Long, Ngo, 2022. "A dynamic analysis of international environmental agreements under partial cooperation," European Economic Review, Elsevier, vol. 143(C).
    11. Natalia Escobar-Pemberthy & Maria Ivanova, 2020. "Implementation of Multilateral Environmental Agreements: Rationale and Design of the Environmental Conventions Index," Sustainability, MDPI, vol. 12(17), pages 1-23, August.
    12. Noha Elboghdadly & Michael Finus, 2020. "Enforcing Climate Agreements: The Role of Escalating Border Carbon Adjustments," Graz Economics Papers 2020-11, University of Graz, Department of Economics.
    13. Fabio Antoniou & Panos Hatzipanayotou & Nikos Tsakiris, 2021. "Strategic Export Motives and Linking Emission Markets," CESifo Working Paper Series 8847, CESifo.
    14. Overland, Indra & Sabyrbekov, Rahat, 2022. "Know your opponent: Which countries might fight the European carbon border adjustment mechanism?," Energy Policy, Elsevier, vol. 169(C).
    15. Noha Elboghdadly & Michael Finus, 2020. "Non-Cooperative Climate Policies among Asymmetric Countries: Production- versus Consumption-based Carbon Taxes," Graz Economics Papers 2020-16, University of Graz, Department of Economics.
    16. Terrence Iverson, 2022. "Advancing Global Carbon Abatement with a Two-Tier Climate Club," CESifo Working Paper Series 9831, CESifo.
    17. Elisabeth Christen & Bettina Meinhart & Franz Sinabell & Gerhard Streicher, 2021. "Transportkostenwahrheit im internationalen Handel," WIFO Studies, WIFO, number 67045, February.
    18. Thomas Kuhn & Radomir Pestow & Anja Zenker, 2022. "Formation of Climate Coalitions and Preferential Free Trade - The Case for Participation Linkage," Chemnitz Economic Papers 057, Department of Economics, Chemnitz University of Technology, revised Nov 2022.
    19. Gilbert Kollenbach, 2022. "International Environmental Agreements and Black Technology," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(3), pages 601-624, July.
    20. Jeremiás Máté Balogh & Tamás Mizik, 2021. "Trade–Climate Nexus: A Systematic Review of the Literature," Economies, MDPI, vol. 9(3), pages 1-19, June.
    21. Thomas Kuhn & Radomir Pestow & Anja Zenker, 2019. "Building Climate Coalitions on Preferential Free Trade Agreements," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 539-569, October.
    22. Balogh, Jeremiás Máté, 2021. "A kereskedelmi megállapodások szerepe a klímaváltozásban. Szakirodalmi áttekintés [The role of trade agreements in climate change. Systematic literature review]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 540-563.
    23. Noha Elboghdadly & Michael Finus, 2022. "Strategic climate policy with endogenous plant location: The role of border carbon adjustments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1266-1309, December.

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    More about this item

    Keywords

    self-enforcing international climate agreements; international trade; border carbon adjustments;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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