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Mitigating carbon leakage: Combining output-based rebating with a consumption tax

Author

Listed:
  • Christoph Böhringer

    (Carl von Ossietzky Universität Oldenburg, Institut für Volkswirtschaftslehre & ZenTra)

  • Knut Einar Rosendahl

    (Norwegian University of Life Sciences, School of Economics and Business)

  • Halvor Briseid Storrøsten

    (Statistics Norway, Oslo / Norway)

Abstract

Unilateral climate policy induces carbon leakage through the relocation of emission-intensive and trade-exposed industries to regions with no or more lenient emission regulation. Both analytical and numerical studies suggest that emission pricing combined with border carbon adjustments may be a second-best instrument, and more cost-effective than output-based rebating, in which case domestic output is indirectly subsidized. No countries have so far imposed border carbon adjustments, while variants of output-based rebating have been implemented. In this paper we demonstrate that it is welfare improving for a region who has already implemented emission pricing along with output-based rebating for emission-intensive and trade-exposed goods to also introduce a consumption tax on these goods. Moreover, we show that combining output-based rebating with a consumption tax can be equivalent with border carbon adjustments.

Suggested Citation

  • Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2015. "Mitigating carbon leakage: Combining output-based rebating with a consumption tax," ZenTra Working Papers in Transnational Studies 54 / 2015, ZenTra - Center for Transnational Studies.
    • Handle: RePEc:zen:wpaper:54
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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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