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Leakage from climate policies and border tax adjustment:lessons from a geographic model of the cement industry

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  • Philippe Quirion

    (CIRED - Centre international de recherche sur l'environnement et le développement - ENGREF - Ecole Nationale du Génie Rural, des Eaux et des Forêts - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Damien Demailly

    (CIRED - Centre international de recherche sur l'environnement et le développement - ENGREF - Ecole Nationale du Génie Rural, des Eaux et des Forêts - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

We present a spatial international trade model, GEO, which computes transportation costs bynot treating markets as dimensionless points and explicitly represents capacity shortages andinvestment decisions in new production capacities. We link it to CEMSIM, a partialequilibrium model of the world cement industry developed by the IPTS. We assume that theKyoto Protocol Annex B countries (except the USA and Australia), create a CO2 tax at 15euros per tonne. This policy entails significant emissions reductions (around 20%) in thesecountries. A significant leakage occurs, with an emissions increase in the rest of the world ofaround 20% of the emissions reduction in Annex B-USA&Australia. We thus run twoscenarios combining a CO2 tax with border-tax adjustments (BTA). With the more ambitiousBTA tested, not only is there no leakage, but emissions in the rest of the world decreaseslightly. However, compared to business-as-usual, non-Annex B price-competitiveness andproduction decrease a little and these countries loose some market shares, so they couldattack this system as distorting competition in favour of Annex B countries. A less ambitiousBTA is thus tested, which cannot be criticised on this ground and prevents almost all leakage.The only drawback of both BTA policies is that the cement price in Annex BUSA&Australia increases a little more than without BTA, further impacting the cementconsumers in these countries.

Suggested Citation

  • Philippe Quirion & Damien Demailly, 2006. "Leakage from climate policies and border tax adjustment:lessons from a geographic model of the cement industry," Working Papers halshs-00009337, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00009337
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00009337
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    Cited by:

    1. Zhang, Zhong Xiang, 2012. "Competitiveness and Leakage Concerns and Border Carbon Adjustments," International Review of Environmental and Resource Economics, now publishers, vol. 6(3), pages 225-287, December.
    2. repec:dau:papers:123456789/7346 is not listed on IDEAS
    3. Daniel Gros, 2009. "Global Welfare Implications of Carbon Border Taxes," CESifo Working Paper Series 2790, CESifo.
    4. Yan Dong & John Walley, 2012. "How Large Are The Impacts Of Carbon Motivated Border Tax Adjustments?," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-28.
    5. Anger, Niels & Alexeeva-Talebi, Victoria & Löschel, Andreas, 2008. "Alleviating Adverse Implications of EU Climate Policy on Competitiveness: The Case for Border Tax Adjustments or the Clean Development Mechanism?," ZEW Discussion Papers 08-095, ZEW - Leibniz Centre for European Economic Research.
    6. Misato Sato & Karsten Neuhoff & Verena Graichen & Katja Schumacher & Felix Matthes, 2013. "Sectors under scrutiny � Evaluation of indicators to assess the risk of carbon leakage in the UK and Germany," GRI Working Papers 113, Grantham Research Institute on Climate Change and the Environment.
    7. Madison Condon & Ada Ignaciuk, 2013. "Border Carbon Adjustment and International Trade: A Literature Review," OECD Trade and Environment Working Papers 2013/6, OECD Publishing.
    8. 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.
    9. Monjon, Stéphanie & Quirion, Philippe, 2010. "How to design a border adjustment for the European Union Emissions Trading System?," Energy Policy, Elsevier, vol. 38(9), pages 5199-5207, September.
    10. Bård Harstad, 2010. "Buy Coal! Deposit Markets Prevent Carbon Leakage," CESifo Working Paper Series 2992, CESifo.
    11. Sato, Misato & Dechezleprêtre, Antoine, 2015. "Asymmetric industrial energy prices and international trade," Energy Economics, Elsevier, vol. 52(S1), pages 130-141.
    12. Meunier, Guy & Ponssard, Jean-Pierre & Quirion, Philippe, 2014. "Carbon leakage and capacity-based allocations: Is the EU right?," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 262-279.
    13. Bruno Lanz & Thomas F. Rutherford & John E. Tilton, 2013. "Subglobal Climate Agreements and Energy-intensive Activities: An Evaluation of Carbon Leakage in the Copper Industry," The World Economy, Wiley Blackwell, vol. 36(3), pages 254-279, March.
    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. Roland Ismer & Karsten Neuhoff, 2007. "Border tax adjustment: a feasible way to support stringent emission trading," European Journal of Law and Economics, Springer, vol. 24(2), pages 137-164, October.
    16. Guy Meunier, 2015. "Prices vs. quantities in presence of a second, unpriced, externality," Working Papers hal-01242040, HAL.
    17. Susanne Droege, 2011. "Using border measures to address carbon flows," Climate Policy, Taylor & Francis Journals, vol. 11(5), pages 1191-1201, September.
    18. Lennox, James A. & Turner, James & Daigneault, Adam J. & Jhunjhnuwala, Kanika, 2013. "Regional, sectoral and temporal differences in carbon leakage," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia 152164, Australian Agricultural and Resource Economics Society.
    19. Aaditya Mattoo & Arvind Subramanian & Dominique Mensbrugghe & Jianwu He, 2013. "Trade effects of alternative carbon border-tax schemes," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(3), pages 587-609, September.
    20. Löschel, Andreas & Alexeeva-Talebi, Victoria & Mennel, Tim, 2008. "Climate Policy and the Problem of Competitiveness: Border Tax Adjustments or Integrated Emission Trading?," ZEW Discussion Papers 08-061, ZEW - Leibniz Centre for European Economic Research.
    21. Melanie Hecht & Wolfgang Peters, 2019. "Border Adjustments Supplementing Nationally Determined Carbon Pricing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(1), pages 93-109, May.
    22. Sakai, Marco & Barrett, John, 2016. "Border carbon adjustments: Addressing emissions embodied in trade," Energy Policy, Elsevier, vol. 92(C), pages 102-110.
    23. Stibniati Atmadja & Louis Verchot, 2012. "A review of the state of research, policies and strategies in addressing leakage from reducing emissions from deforestation and forest degradation (REDD+)," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 17(3), pages 311-336, March.

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