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Targeted carbon tariffs. Carbon leakage and welfare effects

Author

Listed:
  • Böhringer, Christoph

    (Department of Economics, University of Oldenburg, Germany)

  • Bye, Brita

    (Statistics Norway, Research Department)

  • Fæhn, Taran

    (Statistics Norway, Research Department)

  • Rosendahl, Knut Einar

    () (School of Economics and Business, Norwegian University of Life Sciences)

Abstract

Climate effects of unilateral carbon policies are undermined by carbon leakage. To counteract leakage and increase global cost-effectiveness carbon tariffs can be imposed on the emissions embodied in imports from non-regulating regions. We present a theoretical analysis on the economic incentives for emission abatement of producers subjected to carbon tariffs. We quantify the impacts of different carbon tariff designs by an empirically based multi-sector, multi-region CGE model of the global economy. We find that firm-targeted tariffs can deliver much stronger leakage reduction and higher efficiency gains than tariff designs operated at the industry level. In particular, because the exporters are able to reduce their carbon tariffs by adjusting emissions, their competitiveness and the overall welfare of their economies will be less randomly and less adversely affected than in previously studied carbon tariff regimes. This beneficial distributional impact could facilitate a higher degree of legitimacy and legality of carbon tariffs.

Suggested Citation

  • Böhringer, Christoph & Bye, Brita & Fæhn, Taran & Rosendahl, Knut Einar, 2015. "Targeted carbon tariffs. Carbon leakage and welfare effects," Working Paper Series 08-2015, Norwegian University of Life Sciences, School of Economics and Business.
  • Handle: RePEc:hhs:nlsseb:2015_008
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    References listed on IDEAS

    as
    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. Aaditya Mattoo & Arvind Subramanian & Dominique van der Mensbrugghe & Jianwu He, 2009. "Reconciling Climate Change and Trade Policy," Working Papers 189, Center for Global Development.
    3. Boehringer Christoph & Fischer Carolyn & Rosendahl Knut Einar, 2010. "The Global Effects of Subglobal Climate Policies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-35, December.
    4. Böhringer, Christoph & Balistreri, Edward J. & Rutherford, Thomas F., 2012. "The role of border carbon adjustment in unilateral climate policy: Overview of an Energy Modeling Forum study (EMF 29)," Energy Economics, Elsevier, vol. 34(S2), pages 97-110.
    5. Böhringer, Christoph & Bye, Brita & Fæhn, Taran & Rosendahl, Knut Einar, 2012. "Alternative designs for tariffs on embodied carbon: A global cost-effectiveness analysis," Energy Economics, Elsevier, vol. 34(S2), pages 143-153.
    6. Branger, Frédéric & Quirion, Philippe, 2014. "Would border carbon adjustments prevent carbon leakage and heavy industry competitiveness losses? Insights from a meta-analysis of recent economic studies," Ecological Economics, Elsevier, vol. 99(C), pages 29-39.
    7. repec:zbw:hohpro:345 is not listed on IDEAS
    8. Fischer, Carolyn & Fox, Alan K., 2012. "Comparing policies to combat emissions leakage: Border carbon adjustments versus rebates," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 199-216.
    9. Edward J. Balistreri & Ayed Al-Qahtani & Carol A. Dahl, 2010. "Oil and Petroleum Product Armington Elasticities: A New-Geography-of-Trade Approach to Estimation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 167-180.
    10. Graham, Paul & Thorpe, Sally & Hogan, Lindsay, 1999. "Non-competitive market behaviour in the international coking coal market," Energy Economics, Elsevier, vol. 21(3), pages 195-212, June.
    11. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
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    Citations

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    Cited by:

    1. Christoph Böhringer & Jan Schneider & Emmanuel Asane-Otoo, 2016. "Trade In Carbon And The Effectiveness Of Carbon Tariffs," Working Papers V-388-16, University of Oldenburg, Department of Economics, revised Apr 2016.
    2. Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2015. "Mitigating carbon leakage: Combining output-based rebating with a consumption tax," ZenTra Working Papers in Transnational Studies 54 / 2015, ZenTra - Center for Transnational Studies.
    3. Christoph Boehringer & Thomas Fox Rutherford, 2017. "Paris after Trump: An inconvenient insight," Working Papers V-400-17, University of Oldenburg, Department of Economics, revised Jun 2017.

    More about this item

    Keywords

    carbon leakage; border carbon adjustment; carbon tariffs; computable general equilibrium (CGE);

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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