A CGE Analysis of Border Adjustments Under the Cap-and-Trade System: A Case Study of the Japanese Economy

36 Pages Posted: 9 Aug 2011

See all articles by Shiro Takeda

Shiro Takeda

Kyoto Sangyo University

Tetsuya Horie

Sophia University

Toshi H. Arimura

Waseda University - School of Political Science and Economics

Date Written: July 20, 2011

Abstract

Using a multi-region and multi-sector CGE model, this paper evaluates the impact of border adjustment policies of carbon regulations on the Japanese economy. We consider the following six scenarios: 1) no border adjustment, 2) carbon tariffs on imports based on the carbon content in foreign exporters’ production, 3) carbon tariffs on imports based on the carbon content in domestic production (BID), 4) carbon tariffs on imports and rebates on exports based on the carbon content in domestic production (BIED), 5) BID applied only to the EITE (energy-intensive trade-exposed) sectors, and 6) BIED applied only to the EITE sectors. In particular, we examine the impact of the border adjustment policies on the welfare of the Japanese economy, carbon leakage, and the competitiveness of the Japanese EITE sectors.

Our analysis shows that no single border adjustment policy is superior to the other policies in terms of simultaneously solving all three issues: welfare impacts, carbon leakage, and the loss of competitiveness in the EITE sectors. In addition, we show that export border adjustment often plays a crucial role in Japan. This insight is interesting because the policy debate on border adjustment is often biased toward import border adjustment. Our analysis also reveals that border adjustment in Japan significantly affects carbon leakage to China and the competitiveness of the iron and steel sector. Finally, we show that border adjustments with and without consideration to indirect emissions have similar impacts, which indicates that the information regarding direct emissions is enough to implement border adjustment in Japan.

Keywords: CGE analysis, climate change, border adjustment, carbon leakage, competitiveness

JEL Classification: C68, F18, Q54, Q56

Suggested Citation

Takeda, Shiro and Horie, Tetsuya and Arimura, Toshihide H., A CGE Analysis of Border Adjustments Under the Cap-and-Trade System: A Case Study of the Japanese Economy (July 20, 2011). Available at SSRN: https://ssrn.com/abstract=1907108 or http://dx.doi.org/10.2139/ssrn.1907108

Shiro Takeda (Contact Author)

Kyoto Sangyo University ( email )

Motoyama, Kamigamo
Kitaku
Kyoto City, Kyoto 603-8555
Japan

HOME PAGE: http://shirotakeda.org/

Tetsuya Horie

Sophia University ( email )

Tokyo, 102
United States

Toshihide H. Arimura

Waseda University - School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

Register to save articles to
your library

Register

Paper statistics

Downloads
123
Abstract Views
893
rank
233,889
PlumX Metrics