Global Welfare Implications of Carbon Border Taxes
CEPS Working Document No. 315
19 Pages Posted: 8 Jul 2009
There are 3 versions of this paper
Global Welfare Implications of Carbon Border Taxes
Global Welfare Implications of Carbon Border Taxes
Global Welfare Implications of Carbon Border Taxes
Date Written: July 6, 2009
Abstract
This paper presents a simple, basic model to compute the welfare consequences of the introduction of a tariff on the CO2 content of imported goods in a country that already imposes a domestic carbon tax. The main finding is that the introduction of a carbon import tariff increases global welfare (and not just the welfare of the importing country) if there is no (or insufficient) pricing of carbon abroad. A higher domestic price of carbon justifies a higher import tariff. Moreover, a higher relative intensity of carbon abroad increases the desirability of high import tariff imposed by the home country because a border tax shifts production to the importing country, which in this case leads to lower environmental costs.
Keywords: Climate Change, Carbon, CO2, Global Welfare
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