Alleviating Adverse Implications of EU Climate Policy on Competitiveness: The Case for Border Tax Adjustments or the Clean Development Mechanism?
26 Pages Posted: 10 Dec 2008
Date Written: 2008
Abstract
Ambitious unilateral EU environmental policy has raised concerns about adverse competitiveness implications for European energy-intensive and export-oriented sectors. We analyze the economic and environmental implications of two different measures to address these concerns in the EU Emission Trading Scheme (EU ETS): border tax adjustments (BTA) and the Clean Development Mechanism (CDM). Numerical simulations with a computable general equilibrium model of the global economy demonstrate that alternative BTA regimes are suitable to alleviate adverse competiveness implications of unilateral European climate policy on energy-intensive and export-oriented industries. The regulatory protection of these industries via subsidies for EU exporters and tariffs for non-EU importers goes, however, at the expense of sectors which are excluded from the EU ETS. We show that the choice of alternative benchmarks (i.e. carbon intensities) for the level of BTA substantially affects these competitiveness implications. The simulations further indicate that limited access to low-cost emission abatement via the CDM in the EU ETS alleviates adverse competitiveness impacts to a comparable extent as the most ambitious BTA scheme. Increasing "where-flexibility" of emission abatement thus represents an attractive market-based alternative to the application of border tax adjustments in unilateral climate policy.
Keywords: Emissions Trading, EU ETS, Competitiveness, Border tax adjustments, Clean Development Mechanism, CGE model
JEL Classification: D58, F18, H23, Q48
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
On the Design of Optimal Grandfathering Schemes for Emission Allowances
By Christoph Böhringer and Andreas Lange
-
Economic Implications of Alternative Allocation Schemes for Emission Allowances
By Christoph Böhringer and Andreas Lange
-
By Viktoria Alexeeva-talebi, Andreas Löschel, ...
-
Public Interest vs. Interest Groups: Allowance Allocation in the EU Emissions Trading Scheme
By Niels Anger, Christoph Böhringer, ...
-
Emissions Trading: Impact on Electricity Prices and Energy-Intensive Industries
By Manuel Frondel, Christoph M. Schmidt, ...
-
Economic Effects of Vat Reform in Germany
By Stefan Boeters, Christoph Böhringer, ...
-
Auctioning of CO2 Emission Allowances in Phase 3 of the EU Emissions Trading Scheme
By Andreas Löschel, Bodo Sturm, ...
-
Regulation, Allocation, and Leakage in Cap-and-Trade Markets for CO2
By James Bushnell and Yihsu Chen