Climate Policy and the Problem of Competitiveness: Border Tax Adjustments or Integrated Emission Trading?
In the absence of an international agreement on climate policy, unilateral carbon abatement creates two problems: It tends to have a detrimental effect on domestic competitiveness, and it leads to an increase in carbon emissions abroad (leakage). This paper analyses two policies that have recently been proposed to mitigate these problems: Border tax adjustments (BTA) and integrated emission trading (IET). The former policy levies a quantity-based, the latter an emission based duty on imports from non-abating countries. In a stylised two-country model we demonstrate that the policies address both problems. However, BTA protects domestic competitiveness more effectively, while IET achieves a greater reduction in foreign emissions. A computational general equilibrium analysis of the unilateral abatement policy adopted by the European Union confirms our theoretical insights for the sectors covered by the offsetting measures. However, the implications for the competitiveness of noncovered sectors are negative. These two effects constitute the central trade-off in the implementation of both policies.
|Date of creation:||2008|
|Contact details of provider:|| Postal: L 7,1; D - 68161 Mannheim|
Web page: http://www.zew.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Lars Mathiesen and Ottar Maestad, 2004. "Climate Policy and the Steel Industry: Achieving Global Emission Reductions by an Incomplete Climate Agreement," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 91-114.
- Dannenberg, Astrid & Mennel, Tim & Moslener, Ulf, 2008.
"What does Europe pay for clean energy?--Review of macroeconomic simulation studies,"
Elsevier, vol. 36(4), pages 1318-1330, April.
- Dannenberg, Astrid & Mennel, Tim & Moslener, Ulf, 2007. "What Does Europe Pay for Clean Energy? Review of Macroeconomic Simulation Studies," ZEW Discussion Papers 07-019, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Christoph Böhringer & Andreas Lange, 2005. "Economic Implications of Alternative Allocation Schemes for Emission Allowances," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 563-581, 09.
- Meade, James E, 1974. "A Note on Border-Tax Adjustments," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 1013-1015, Sept./Oct.
- 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).
- Bohringer, Christoph & Lange, Andreas, 2005. "On the design of optimal grandfathering schemes for emission allowances," European Economic Review, Elsevier, vol. 49(8), pages 2041-2055, November.
- Böhringer, Christoph & Lange, Andreas, 2003. "On the Design of Optimal Grandfathering Schemes for Emission Allowances," ZEW Discussion Papers 03-08, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- 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.
- Grubb, M. & Neuhoff, K., 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Cambridge Working Papers in Economics 0645, Faculty of Economics, University of Cambridge.
- Bhagwati, Jagdish N. & Srinivasan, T. N., 1973. "The general equilibrium theory of effective protection and resource allocation," Journal of International Economics, Elsevier, vol. 3(3), pages 259-281, August.
- J. Bhagwati & T. N. Srinivasan, 1972. "The General Equilibrium Theory of Effective Protection and Resource Allocation," Working papers 91, Massachusetts Institute of Technology (MIT), Department of Economics.
- Anger, Niels, 2008. "Emissions trading beyond Europe: Linking schemes in a post-Kyoto world," Energy Economics, Elsevier, vol. 30(4), pages 2028-2049, July.
- Grossman, Gene M., 1980. "Border tax adjustments: Do they distort trade?," Journal of International Economics, Elsevier, vol. 10(1), pages 117-128, February.
- 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.
- Thomas A. Barthold, 1994. "Issues in the Design of Environmental Excise Taxes," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 133-151, Winter.
- Philippe Quirion & Damien Demailly, 2006. "Leakage from climate policies and border tax adjustment:lessons from a geographic model of the cement industry," CIRED Working Papers halshs-00009337, HAL. Full references (including those not matched with items on IDEAS)