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Is there a Case for Carbon-Based Border Tax Adjustment?: An Applied General Equilibrium Analysis

Listed author(s):
  • Jean-Marc Burniaux


  • Jean Château


  • Romain Duval


Concern that unilateral greenhouse gas emission reductions could foster carbon leakage and undermine the international competitiveness of domestic industry has led to growing calls for carbon-based border-tax adjustments (BTAs). This paper uses a global general equilibrium model to assess the economic effects of BTAs and comes to three main conclusions. First, BTAs can reduce carbon leakage if the coalition of countries taking action to reduce emissions is small, because in this case leakage (while typically small) mainly occurs through international trade competitiveness losses rather than through declines in world fossil fuel prices that trigger rising carbon intensities outside the region taking action. Second, the welfare impacts of BTAs are small, and typically slightly negative at the world level. Third, and perhaps more strikingly, BTAs do not necessarily curb the output losses incurred by the domestic energy intensive-industries (EIIs) they are intended to protect in the first place. This is in part because taken as a whole, EIIs in industrialised countries make important use of carbon-intensive intermediate inputs produced by EIIs in other geographical areas. Another, deeper explanation is that EIIs are ultimately more adversely affected by carbon pricing itself, and the associated contraction in market size, than by any international competitiveness losses. These findings are shown to be robust to key model parameters, country coverage and design features of BTAs. Y-a-t-il un argument en faveur d'une taxe carbone aux frontières ? : Une analyse d'équilibre général Les craintes que des réductions unilatérales d’émissions de gaz à effet de serre soient en partie compensées par des fuites de carbone tout en ayant un effet négatif sur la compétitivité des industries domestiques ont entraîné des appels croissants en faveur de taxes carbone aux frontières (TCFs). Cet article utilise un modèle d’équilibre général appliqué pour évaluer les effets économiques des TCFs et aboutit à trois conclusions. Premièrement, les TCFs peuvent réduire les fuites de carbone lorsque la coalition de pays prenant des mesures de réduction des émissions est réduite, car dans ce cas les fuites carbone (quoique typiquement faibles) se produisent essentiellement via des pertes de compétitivité internationale, plutôt que via des baisses du prix mondial des énergies fossiles qui entraînent une hausse de l’intensité en carbone dans le reste du monde. Deuxièmement, les impacts des TCFs sur le bien-être sont faibles, et typiquement légèrement négatifs au niveau mondial. Troisièmement, et peut-être de façon plus frappante, les TCFs n’atténuent pas nécessairement les pertes de production subies par les industries domestiques intensives en énergie (IIEs) qu’elles sont pourtant censées protéger. Cela tient en partie à ce que prises dans leur ensemble, les IIEs dans les pays industrialisés utilisent de façon importante des intrants intensifs en carbone produits par les IIEs d’autres zones géographiques. Une autre explication plus profonde est que les IIEs sont in fine davantage touchées par l’existence d’un prix du carbone lui-même, et par la contraction de la taille du marché qui s’en suit, que par de quelconques pertes de compétitivité internationale. Ces résultats s’avèrent robustes à des hypothèses alternatives concernant certains paramètres clé du modèle, les pays couverts et les modalités de mise en place des TCFs.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 794.

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Date of creation: 21 Jul 2010
Handle: RePEc:oec:ecoaaa:794-en
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