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

42 Pages Posted: 4 Sep 2015

See all articles by Christoph Böhringer

Christoph Böhringer

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

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Halvor Briseid Storrosten

Statistics Norway

Date Written: September 3, 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: D61, H2, Q54

Suggested Citation

Bohringer, Christoph and Rosendahl, Knut Einar and Storrosten, Halvor Briseid, Mitigating Carbon Leakage: Combining Output-Based Rebating with a Consumption Tax (September 3, 2015). ZenTra Working Paper in Transnational Studies No. 54 / 2015. Available at SSRN: https://ssrn.com/abstract=2655564 or http://dx.doi.org/10.2139/ssrn.2655564

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)

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)

Halvor Briseid Storrosten

Statistics Norway ( email )

N-0033 Oslo
Norway

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