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Efficiency and Equity Implications of Alternative Instruments to Reduce Carbon Leakage

Author

Listed:
  • Christoph Böhringer

    () (University of Oldenburg, Department of Economics, Germany)

  • Jared C. Carbone

    () (University of Calgary, Canada)

  • Thomas F. Rutherford

    () (University of Wisconsin, USA)

Abstract

The cost-effectiveness of unilateral emission abatement can be seriously hampered by emission leakage. We assess three widely-discussed proposals for leakage reduction targeted at energy-intensive and trade-exposed industries: border tax adjustments, output-based allocation and industry exemptions. We find that none of these measures amounts to a “magic bullet” when both efficiency and equity criteria matter. Border tax adjustments reduce leakage and provide global cost savings but exacerbate regional inequality. Exemptions produce very little leakage reduction and run the risk of increasing efficiency cost of climate policy. Output-based allocation does no harm but also does relatively little good by our outcome measures.

Suggested Citation

  • Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2012. "Efficiency and Equity Implications of Alternative Instruments to Reduce Carbon Leakage," Working Papers V-346-12, University of Oldenburg, Department of Economics, revised Jun 2012.
  • Handle: RePEc:old:dpaper:346
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    File URL: http://www.vwl.uni-oldenburg.de/download/V-346-12.pdf
    File Function: First version, 2012
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    References listed on IDEAS

    as
    1. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
    2. Christoph Bohringer & Jared Carbone & Thomas F. Rutherford, "undated". "Embodied Carbon Tariffs," Working Papers 2013-24, Department of Economics, University of Calgary, revised 11 Oct 2013.
    3. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Munnings, Clayton & Morgenstern, Richard & Wang, Zhongmin & Liu, Xu, 2014. "Assessing the Design of Three Pilot Programs for Carbon Trading in China," Discussion Papers dp-14-36, Resources For the Future.
    2. 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.
    3. Böhringer, Christoph & Garcia-Muros, Xaquin & Cazcarro, Ignacio & Arto, Iñaki, 2017. "The efficiency cost of protective measures in climate policy," Energy Policy, Elsevier, vol. 104(C), pages 446-454.

    More about this item

    Keywords

    Unilateral Climate Policy; Leakage; Efficiency; Equity;

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