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Border Carbon Adjustments: Rationale, Design and Impact

Author

Listed:
  • Mr. Michael Keen
  • Ian W.H. Parry
  • Mr. James Roaf

Abstract

This paper assesses the rationale, design, and impacts of border carbon adjustments (BCAs). Large disparities in carbon pricing between countries raise concerns about competitiveness and emissions leakage. BCAs are potentially the most effective domestic instrument for addressing these challenges—but design details are critical. For example, limiting coverage of the BCA to energy-intensive, trade-exposed industries facilitates administration, and initially benchmarking BCAs on domestic emissions intensities would ease the transition for trading partners with emission-intensive production. It is also important to consider how to apply BCAs across countries with different approaches to emissions mitigation. BCAs alone do not solve the free-rider problem in carbon pricing, but might be a step to an effective international carbon price floor.

Suggested Citation

  • Mr. Michael Keen & Ian W.H. Parry & Mr. James Roaf, 2021. "Border Carbon Adjustments: Rationale, Design and Impact," IMF Working Papers 2021/239, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/239
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    Cited by:

    1. Yiwen Yang & Hsiu‐Chi Wu & Sheng‐Ming Hsu & Pei‐Yu Chi & Chin‐Ho Lin, 2024. "The impact of Carbon Border Adjustment Mechanism on trade in the Russia‐Ukraine war context," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(6), pages 3791-3804, September.
    2. Mvile, Benatus Norbert & Bishoge, Obadia Kyetuza, 2024. "Mining and sustainable development goals in Africa," Resources Policy, Elsevier, vol. 90(C).
    3. Johansson, Per-Olov & Kriström, Bengt, 2025. "“Green” steel investments in the EU: Pie in the sky?," Resource and Energy Economics, Elsevier, vol. 82(C).
    4. Sadiq H. Melhim & Rima J. Isaifan, 2025. "The Energy-Economy Nexus of Advanced Air Pollution Control Technologies: Pathways to Sustainable Development," Energies, MDPI, vol. 18(9), pages 1-41, May.
    5. Xinxin Liao & Zhuo Ning, 2022. "Welfare Implications of Border Carbon Adjustments on the Trade of Harvested Wood Products," IJERPH, MDPI, vol. 20(1), pages 1-16, December.
    6. Tian Lan & Ran Tao, 2024. "Research on the Inhibitory Effect of the EU’s Carbon Border Adjustment Mechanism on Carbon Leakage," Sustainability, MDPI, vol. 16(17), pages 1-21, August.
    7. Goran Dominioni & Louisa Parks & Markus Pauli, 2025. "The external dimensions of the European Green Deal," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 25(2), pages 171-176, June.
    8. Stuart Adam & Isaac Delestre & Peter Levell & Helen Miller, 2022. "Tax policies to reduce carbon emissions," Fiscal Studies, John Wiley & Sons, vol. 43(3), pages 235-263, September.
    9. Amendola, Marco, 2025. "Winners and losers of the EU carbon border adjustment mechanism. An intra-EU issue?," Energy Economics, Elsevier, vol. 142(C).
    10. Lydgate, Emily & Winters, L. Alan, 2025. "The UK's border carbon leakage trilemma," Energy Policy, Elsevier, vol. 198(C).
    11. Hebous, Shafik & Vernon-Lin, Nate, 2024. "Cryptocarbon: How much is the corrective tax?," Energy Economics, Elsevier, vol. 138(C).
    12. Robert B. Koopman & Mary Lisa Madell, 2023. "A fairer and more resilient multilateral trading system will require a reinvigorated WTO," Global Policy, London School of Economics and Political Science, vol. 14(S2), pages 35-39, March.
    13. Nikos Tsakiris & Nikolaos Vlassis, 2024. "Border Carbon Adjustments and Leakage in the Presence of Public Pollution Abatement Activities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(9), pages 2231-2258, September.
    14. Xianting Bao & Yuran Jin, 2025. "Insight into border carbon adjustment: a visual bibliometric analysis from 2009 to 2024," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-17, December.

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