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Who Cares About Carbon Leakage? The Economics Of Border Tax Adjustments Under Incomplete Climate Treaties

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  • Leslie Shiell

    () (Department of Economics, University of Ottawa, Ottawa, ON)

Abstract

Optimal choices of border tax adjustments (BTA) – tariffs or subsidies on imports and exports – are derived for a coalition of countries working cooperatively to abate greenhouse gas emissions, under an exogenous emissions reduction target. Under a domestic target, the optimal BTA is determined by a terms of trade effect only; therefore there is no justification for a carbon based BTA. It follows that most policy modelling papers have used the wrong baseline (constant domestic target) to test the effectiveness of carbon based BTA’s. Under a global target, the optimal BTA consists of the standard two components from earlier literature: the terms of trade component and an induced foreign emissions component. The common focus on carbon leakage as a major policy concern seems to be misplaced, since leakage represents the optimal rearrangement of production patterns, from the perspective of the coalition, in order to meet the target (domestic or global) in the least-cost manner.

Suggested Citation

  • Leslie Shiell, 2014. "Who Cares About Carbon Leakage? The Economics Of Border Tax Adjustments Under Incomplete Climate Treaties," Working Papers 1403E, University of Ottawa, Department of Economics.
  • Handle: RePEc:ott:wpaper:1403e
    as

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    File URL: http://sciencessociales.uottawa.ca/economics/sites/socialsciences.uottawa.ca.economics/files/1403e.pdf
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    References listed on IDEAS

    as
    1. Winchester Niven & Paltsev Sergey & Reilly John M, 2011. "Will Border Carbon Adjustments Work?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, January.
    2. Rodney D. Ludema & Ian Wooton, 1994. "Cross-Border Externalities and Trade Liberalization: The Strategic Control of Pollution," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 950-966, November.
    3. Hoel Michael, 1994. "Efficient Climate Policy in the Presence of Free Riders," Journal of Environmental Economics and Management, Elsevier, vol. 27(3), pages 259-274, November.
    4. Ben Lockwood & John Whalley, 2010. "Carbon-motivated Border Tax Adjustments: Old Wine in Green Bottles?," The World Economy, Wiley Blackwell, vol. 33(6), pages 810-819, June.
    5. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
    6. Schenker, Oliver & Bucher, Raphael, 2010. "On interactions of optimal climate policy and international trade. An assessment of border carbon measures," MPRA Paper 25820, University Library of Munich, Germany.
    7. Lessmann, Kai & Marschinski, Robert & Edenhofer, Ottmar, 2009. "The effects of tariffs on coalition formation in a dynamic global warming game," Economic Modelling, Elsevier, vol. 26(3), pages 641-649, May.
    8. Roland Ismer & Karsten Neuhoff, 2007. "Border tax adjustment: a feasible way to support stringent emission trading," European Journal of Law and Economics, Springer, vol. 24(2), pages 137-164, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    international environmental agreements; border tax adjustments; climate change; carbon leakage.;

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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