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Cost-effective unilateral climate policy design: Size Matters

Given the bleak prospects for a global agreement on mitigating climate change, pressure for unilateral abatement is increasing. A major challenge is emissions leakage. Border carbon adjustments and output-based allocation of emissions allowances can increase effectiveness of unilateral action but introduce distortions of their own. We assess antileakage measures as a function of abatement coalition size. We first develop a partial equilibrium analytical framework to see how these instruments affect emissions within and outside the coalition. We then employ a computable general equilibrium model of international trade and energy use to assess the strategies as the coalition grows. We find that full border adjustments rank first in global cost-effectiveness, followed by import tariffs and output-based rebates. The differences across measures and their overall appeal decline as the abatement coalition grows. In terms of cost, the coalition countries prefer border carbon adjustments; countries outside the coalition prefer output-based rebates.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 664.

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Date of creation: Sep 2011
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Handle: RePEc:ssb:dispap:664
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  1. Jean-Marc Burniaux & Jean Château & Romain Duval, 2010. "Is there a Case for Carbon-Based Border Tax Adjustment?: An Applied General Equilibrium Analysis," OECD Economics Department Working Papers 794, OECD Publishing.
  2. Böhringer, Christoph & Balistreri, Edward J. & Rutherford, Thomas F., 2012. "The role of border carbon adjustment in unilateral climate policy: Overview of an Energy Modeling Forum study (EMF 29)," Energy Economics, Elsevier, vol. 34(S2), pages S97-S110.
  3. Christoph Böhringer & Thomas F. Rutherford, 2010. "The Costs of Compliance: A CGE Assessment of Canada's Policy Options under the Kyoto Protocol," The World Economy, Wiley Blackwell, vol. 33(2), pages 177-211, 02.
  4. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
  5. Christoph Böhringer & Brita Bye & Taran Fæhn & Knut Einar Rosendahl, 2012. "Alternative designs for tariffs on embodied carbon. A global cost-effectiveness analysis," Discussion Papers 682, Research Department of Statistics Norway.
  6. Fischer, Carolyn & Fox, Alan K., 2012. "Comparing policies to combat emissions leakage: Border carbon adjustments versus rebates," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 199-216.
  7. Graham, Paul & Thorpe, Sally & Hogan, Lindsay, 1999. "Non-competitive market behaviour in the international coking coal market," Energy Economics, Elsevier, vol. 21(3), pages 195-212, June.
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  9. 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.
  10. Niven Winchester, 2012. "The Impact of Border Carbon Adjustments Under Alternative Producer Responses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(2), pages 354-359.
  11. Hoel, M., 1993. "Efficient Climate Policy in the Presence of Free Riders," Memorandum 04/1993, Oslo University, Department of Economics.
  12. Böhringer, Christoph & Carbone, Jared C. & Rutherford, Thomas F., 2012. "Unilateral climate policy design: Efficiency and equity implications of alternative instruments to reduce carbon leakage," Energy Economics, Elsevier, vol. 34(S2), pages S208-S217.
  13. 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, 06.
  14. Rob Dellink & Gregory Briner & Christa Clapp, 2011. "The Copenhagen Accord/Cancún Agreements Emission Pledges For 2020: Exploring Economic And Environmental Impacts," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 53-78.
  15. Christoph Böhringer & Carolyn Fischer & Knut Einar Rosendahl, 2010. "The Global Effects of Subglobal Climate Policies," Discussion Papers 634, Research Department of Statistics Norway.
  16. Jean-Marc Burniaux & Joaquim Oliveira Martins, 2012. "Carbon leakages: a general equilibrium view," Economic Theory, Springer, vol. 49(2), pages 473-495, February.
  17. Azusa OKAGAWA & Kanemi BAN, 2008. "Estimation of substitution elasticities for CGE models," Discussion Papers in Economics and Business 08-16, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  18. Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, vol. 24(6), pages 557-576, November.
  19. Christoph Böhringer & Thomas Rutherford, 2002. "Carbon Abatement and International Spillovers," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(3), pages 391-417, July.
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