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Carbon adjustment mechanisms: Empirics, design and caveats

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  • Garnadt, Niklas
  • Grimm, Veronika
  • Reuter, Wolf Heinrich

Abstract

This article explores the design of Carbon Adjustment Mechanisms based on an analysis of historical data, the existing literature as well as theoretical considerations. In the empirical analysis we quantify territorial emissions as compared to the CO2 footprints for countries within the EU-ETS area and globally, we show which (mostly upstream) industries account for the majority of emissions, and identify how their emissions are imported embedded in final or intermediate products from more downstream industries. In an analysis based on gravity equations, we find evidence for carbon leakage in some emission-intensive industries, but only small overall effects. Based on our own evidence and the current literature, we conclude that - if a Carbon Adjustment Mechanism is to be established - focusing on emissions intensive industries could balance excessive bureaucratic burden and carbon leakage mitigation. To be effective, such a system should also extend to embedded emissions in downstream industries to avoid a shift of imports down the value chain. Concerns with regard to international trade relations could be addressed by not implementing Carbon Adjustment Mechanisms unilaterally, but rather using them as the basis for a cooperative approach to climate protection jointly with the most important trading partners.

Suggested Citation

  • Garnadt, Niklas & Grimm, Veronika & Reuter, Wolf Heinrich, 2020. "Carbon adjustment mechanisms: Empirics, design and caveats," Working Papers 11/2020, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
  • Handle: RePEc:zbw:svrwwp:112020
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    References listed on IDEAS

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    Cited by:

    1. Ernst, Anne & Hinterlang, Natascha & Mahle, Alexander & Stähler, Nikolai, 2022. "Carbon pricing, border adjustment and climate clubs: An assessment with EMuSe," Discussion Papers 25/2022, Deutsche Bundesbank.
    2. Berger, Johannes & Köppl-Turyna, Monika & Strohner, Ludwig, 2021. "Analyse der CO2-Abgaben im internationalen Vergleich inklusive Maßnahmen und Handlungsspielräume zur Vermeidung der Verlagerung von CO2-Emissionen," Policy Notes 48, EcoAustria – Institute for Economic Research.

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    More about this item

    Keywords

    Carbon border adjustment; Carbon leakage; Carbon tax; Climate policy;
    All these keywords.

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment

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