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Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates


  • Fischer, Carolyn

    () (Resources for the Future)

  • Fox, Alan K.


We explore conditions determining which anti-leakage policies might be more effective complements to domestic greenhouse gas emissions regulation. We consider four policies that could be combined with unilateral emissions pricing to counter effects on international competitiveness: a border tax on imports, a border rebate for exports, full border adjustment, and a domestic production rebate (as might be implemented with output-based allocation of emissions allowances). Each option faces different potential legal hurdles in international trade law; each also has different economic impacts. While all have the potential to support domestic production, none is necessarily effective at reducing global emissions. Nor is it possible to rank order the options. In each case, the effectiveness depends on the relative emissions rates, elasticities of substitution, and consumption volumes. We illustrate these results with simulations for the energy-intensive sectors of two different economies, the United States and Canada.

Suggested Citation

  • Fischer, Carolyn & Fox, Alan K., 2009. "Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates," Discussion Papers dp-09-02, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-09-02

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    References listed on IDEAS

    1. Ismer, R. & Neuhoff, K., 2004. "Border Tax Adjustments: A feasible way to address nonparticipation in Emission Trading," Cambridge Working Papers in Economics 0409, Faculty of Economics, University of Cambridge.
    2. Demailly, Damien & Quirion, Philippe, 2008. "European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry," Energy Economics, Elsevier, vol. 30(4), pages 2009-2027, July.
    3. Jean Pierre Ponssard & Neil Walker, 2008. "EU emissions trading and the cement sector: a spatial competition analysis," Climate Policy, Taylor & Francis Journals, vol. 8(5), pages 467-493, September.
    4. Green, Andrew, 2006. "Trade rules and climate change subsidies," World Trade Review, Cambridge University Press, vol. 5(03), pages 377-414, November.
    5. Karp, Larry & Zhao, Jinhua, 2008. "A Proposal for the Design of the Successor to the Kyoto Protocol," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt35n7x8mt, Department of Agricultural & Resource Economics, UC Berkeley.
    6. Fischer, Carolyn & Fox, Alan K., 2009. "Combining Rebates with Carbon Taxes: Optimal Strategies for Coping with Emissions Leakage and Tax Interactions," Discussion Papers dp-09-12, Resources For the Future.
    7. Fischer, Carolyn & Hoffmann, Sandra & Yoshino , Yutaka, 2002. "Multilateral Trade Agreements and Market-Based Environmental Policies," Discussion Papers dp-02-28, Resources For the Future.
    8. Carolyn Fischer & Alan K. Fox, 2007. "Output-Based Allocation of Emissions Permits for Mitigating Tax and Trade Interactions," Land Economics, University of Wisconsin Press, vol. 83(4), pages 575-599.
    9. Damien Demailly & Philippe Quirion, 2008. "Concilier compétitivité industrielle et politique climatique. Faut-il distribuer les quotas de CO2 en fonction de la production ou bien les ajuster aux frontières ?," Revue économique, Presses de Sciences-Po, vol. 59(3), pages 497-504.
    10. Peterson, Everett B. & Schleich, Joachim, 2007. "Economic and environmental effects of border tax adjustments," Working Papers "Sustainability and Innovation" S1/2007, Fraunhofer Institute for Systems and Innovation Research (ISI).
    11. van Asselt, Harro & Biermann, Frank, 2007. "European emissions trading and the international competitiveness of energy-intensive industries: a legal and political evaluation of possible supporting measures," Energy Policy, Elsevier, vol. 35(1), pages 497-506, January.
    12. Jean-Marc Burniaux & Joaquim Oliveira Martins, 2000. "Carbon Emission Leakages: A General Equilibrium View," OECD Economics Department Working Papers 242, OECD Publishing.
    13. Michael Grubb & Karsten Neuhoff, 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 7-30, January.
    14. Mustafa H. Babiker & Thomas F. Rutherford, 2005. "The Economic Effects of Border Measures in Subglobal Climate Agreements," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 99-126.
    15. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
    16. Ho, Mun S. & Morgenstern, Richard & Shih, Jhih-Shyang, 2008. "Impact of Carbon Price Policies on U.S. Industry," Discussion Papers dp-08-37, Resources For the Future.
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    More about this item


    environmental tax; rebate; border tax adjustment; emissions leakage; climate;

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis


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