Mitigating Carbon Leakage: Combining Output-Based Rebating with a Consumption Tax

38 Pages Posted: 4 Aug 2015

See all articles by Christoph Boehringer

Christoph Boehringer

University of Oldenburg

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Halvor Briseid Storrosten

Statistics Norway

Date Written: July 31, 2015

Abstract

Unilateral climate policy induces carbon leakage through the relocation of emission-intensive and trade-exposed industries to regions with no or more lenient emission regulation. Both analytical and numerical studies suggest that emission pricing combined with border carbon adjustments may be a second-best instrument, and more cost-effective than output-based rebating, in which case domestic output is indirectly subsidized. No countries have so far imposed border carbon adjustments, while variants of output-based rebating have been implemented. In this paper we demonstrate that it is welfare improving for a region who has already implemented emission pricing along with output-based rebating for emission-intensive and trade-exposed goods to also introduce a consumption tax on these goods. Moreover, we show that combining output-based rebating with a consumption tax can be equivalent with border carbon adjustments.

Keywords: carbon leakage, output-based rebating, border carbon adjustments, consumption tax

JEL Classification: D610, H200, Q540

Suggested Citation

Boehringer, Christoph and Rosendahl, Knut Einar and Storrosten, Halvor Briseid, Mitigating Carbon Leakage: Combining Output-Based Rebating with a Consumption Tax (July 31, 2015). CESifo Working Paper Series No. 5459. Available at SSRN: https://ssrn.com/abstract=2639584

Christoph Boehringer

University of Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, DE D-26111
Germany

Knut Einar Rosendahl (Contact Author)

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)

Halvor Briseid Storrosten

Statistics Norway ( email )

N-0033 Oslo
Norway

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