Unilateral Carbon Taxes, Border Adjustments and Carbon Leakage

44 Pages Posted: 1 Feb 2012 Last revised: 1 Mar 2012

Joshua Elliott

University of Chicago; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Ian Foster

University of Chicago; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Samuel S. Kortum

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Gita Khun Jush

University of Chicago; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Todd Munson

Argonne National Laboratory; University of Chicago

David A. Weisbach

University of Chicago - Law School; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Date Written: January 27, 2012

Abstract

We examine the impact of a unilateral carbon tax in developed countries focusing on the expected size of carbon leakage (an increase in emissions in non-taxing regions as a result of the tax) and the effects on leakage of border tax adjustments. We start by analyzing the problem using a simple two-country, three-good general equilibrium model to develop intuitions. We then simulate the expected size of the effects using a new, open-source, computable general equilibrium (CGE) model. We analyze the extent of emissions reductions from a carbon tax in countries that made commitments under the Kyoto Protocol (Annex B countries), the expected carbon leakage, and the effects of border tax adjustments on carbon leakage, all relative to our baseline projections for emissions. We also perform extensive sensitivity tests on the parameters of the CGE model. Finally, we consider the effects of imperfect border tax adjustments on leakage, such as global or regional schedules of border taxes.

Keywords: carbon leakage, carbon taxes, climate change, Kyoto Protocol, CGE modeling

JEL Classification: C68, F18, H23, K32, Q54

Suggested Citation

Elliott, Joshua and Foster, Ian and Kortum, Samuel S. and Khun Jush, Gita and Munson, Todd and Weisbach, David A., Unilateral Carbon Taxes, Border Adjustments and Carbon Leakage (January 27, 2012). RDCEP Working Paper No. 12-04. Available at SSRN: https://ssrn.com/abstract=1995888 or http://dx.doi.org/10.2139/ssrn.1995888

Joshua Elliott

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

Ian Foster

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

Samuel S. Kortum

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gita Khun Jush

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

Todd Munson

Argonne National Laboratory ( email )

9700 S. Cass Avenue
Argonne, IL 60439
United States

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

David Weisbach (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-3342 (Phone)
773-702-0730 (Fax)

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

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