Cost-Effective Unilateral Climate Policy Design: Size Matters

Resources for the Future Discussion Paper No. 11-34

51 Pages Posted: 31 Dec 2011

See all articles by Christoph Böhringer

Christoph Böhringer

University of Oldenburg - Economic Policy; Centre for European Economic Research (ZEW)

Carolyn Fischer

Resources for the Future

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Date Written: July 22, 2011

Abstract

Given the bleak prospects for a global agreement on coordinated policies to mitigate climate change, political pressure is increasing among industrialized countries for unilateral abatement. A major challenge thereby is the appropriate response to the threat of emissions leakage. Border carbon adjustments and output-based allocation of emissions allowances can increase effectiveness of unilateral action but introduce distortions of their own. We assess the relative attractiveness of these anti-leakage measures as a function of the abatement coalition size. We first develop a partial equilibrium analytical framework to gain generic insights on how these instruments affect emissions within and outside the coalition. We then employ a large-scale computable general equilibrium model of international trade and energy use to assess the cost-effectiveness of alternative anti-leakage strategies as the coalition evolves toward global coverage. We find that full border adjustments rank first in global cost-effectiveness, followed by import tariffs and then output-based rebates. The differences across anti-leakage measures and the overall appeal of such measures decline with the size of the abatement coalition. In terms of cost incidence, the abatement coalition prefers border carbon adjustments over output-based rebates; the opposite holds true for countries outside the coalition.

Keywords: emissions leakage, border carbon adjustments, output-based allocation

JEL Classification: Q2, Q43, H2, D61

Suggested Citation

Bohringer, Christoph and Fischer, Carolyn and Rosendahl, Knut Einar, Cost-Effective Unilateral Climate Policy Design: Size Matters (July 22, 2011). Resources for the Future Discussion Paper No. 11-34. Available at SSRN: https://ssrn.com/abstract=1977676 or http://dx.doi.org/10.2139/ssrn.1977676

Christoph Bohringer

University of Oldenburg - Economic Policy ( email )

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany
+49 6211235200 (Phone)
+49 6211235226 (Fax)

Carolyn Fischer (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States
202-328-5012 (Phone)
202-939-3460 (Fax)

HOME PAGE: http://www.rff.org/~fischer

Knut Einar Rosendahl

Norwegian University of Life Sciences ( email )

PO Box 5033
NO-1432 Aas
Norway
+47 64966117 (Phone)

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway
+47 21094954 (Phone)
+47 21094963 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
40
Abstract Views
578
PlumX Metrics