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The Strategic Value of Carbon Tariffs

Author

Listed:
  • Christoph Böhringer

    (University of Oldenburg, Department of Economics)

  • Jared C. Carbone

    (Department of Economics, University Drive NW, Calgary, Canada,)

  • Thomas F. Rutherford

    (University of Wisconsin, Madison, USA)

Abstract

Unilateral carbon policies are inefficient due to the fact that they generally involve emission reductions in countries with high marginal abatement costs and because they are subject to carbon leakage. In this paper, we ask whether the use of carbon tariffs—tariffs on the carbon embodied in imported goods—might lower the cost of achieving a given reduction in world emissions. Specifically, we explore the role tariffs might play as an inducement to unregulated countries adopting emission controls of their own. We use an applied general equilibrium model to generate the payoffs of a policy game. In the game, a coalition of countries regulates its own emissions and chooses whether or not to employ carbon tariffs against unregulated countries. Unregulated countries may respond by adopting emission regulations of their own, retaliating against the carbon tariffs by engaging in a trade war, or by pursuing no policy at all. In the unique Nash equilibrium produced by this game, the use of carbon tariffs by coalition countries is credible. China and Russia respond by adopting binding abatement targets to avoid being subjected to them. Other unregulated countries retaliate. Cooperation by China and Russia lowers the global welfare cost of achieving a 10% reduction in global emissions by half relative to the case where coalition countries undertake all of this abatement on their own.

Suggested Citation

  • Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2014. "The Strategic Value of Carbon Tariffs," Working Papers V-360-14, University of Oldenburg, Department of Economics, revised Jan 2014.
  • Handle: RePEc:old:dpaper:360
    as

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    References listed on IDEAS

    as
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    2. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2018. "Embodied Carbon Tariffs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(1), pages 183-210, January.
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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