Targeted Carbon Tariffs - Carbon Leakage and Welfare Effects

32 Pages Posted: 17 Apr 2015

See all articles by Christoph Böhringer

Christoph Böhringer

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

Brita Bye

Statistics Norway - Research Department

Taran Faehn

Statistics Norway - Research Department

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Date Written: April 16, 2015

Abstract

Climate effects of unilateral carbon policies are undermined by carbon leakage. To counteract leakage and increase global cost-effectiveness carbon tariffs can be imposed on the emissions embodied in imports from non-regulating regions. We present a theoretical analysis on the economic incentives for emission abatement of producers subjected to carbon tariffs. We quantify the impacts of different carbon tariff designs by an empirically based multi-sector, multi-region CGE model of the global economy. We find that firm-targeted tariffs can deliver much stronger leakage reduction and higher efficiency gains than tariff designs operated at the industry level. In particular, because the exporters are able to reduce their carbon tariffs by adjusting emissions, their competitiveness and the overall welfare of their economies will be less randomly and less adversely affected than in previously studied carbon tariff regimes. This beneficial distributional impact could facilitate a higher degree of legitimacy and legality of carbon tariffs.

Keywords: carbon leakage, border carbon adjustment, carbon tariffs, computable general equilibrium (CGE)

JEL Classification: Q43, Q54, H2, D61

Suggested Citation

Bohringer, Christoph and Bye, Brita and Faehn, Taran and Rosendahl, Knut Einar, Targeted Carbon Tariffs - Carbon Leakage and Welfare Effects (April 16, 2015). ZenTra Working Paper in Transnational Studies No. 51 / 2015. Available at SSRN: https://ssrn.com/abstract=2595049 or http://dx.doi.org/10.2139/ssrn.2595049

Christoph Bohringer (Contact Author)

University of Oldenburg - Economic Policy ( email )

Centre for European Economic Research (ZEW) ( email )

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

Brita Bye

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway

Taran Faehn

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway

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)

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