S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
School of Economics and Business, Norwegian University of Life Sciences Working Paper Series, School of Economics and Business, Norwegian University of Life Sciences

No 14-2015:
Smart hedging against carbon leakage

Christoph B÷hringer (), Knut Einar Rosendahl () and Halvor Briseid Storr°sten ()

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 adjustment is a secondbest instrument, and more cost-effective than output-based rebating, in which case domestic output is indirectly subsidized. No country has so far imposed border carbon adjustment, while variants of output-based rebating have been implemented. In this paper we show that combining output-based rebating for emission-intensive and trade-exposed goods with a consumption tax on the same goods can be equivalent with border carbon adjustment. Moreover, we demonstrate that it is welfare improving for a region which has already implemented emission pricing along with output-based rebating to also introduce such a consumption tax. We conclude that supplementing output-based rebating with a consumption tax constitutes smart hedging against carbon leakage: Compared to output-based rebating stand-alone it constitutes a robust strategy for improving cost-effectiveness of unilateral climate policy; compared to border carbon adjustment it limits the risks of potentially detrimental trade disputes.

Keywords: Carbon leakage; output-based rebating; border carbon adjustment; consumption tax; (follow links to similar papers)

JEL-Codes: D61; H23; Q54; (follow links to similar papers)

41 pages, September 18, 2015

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

hh_wp_14_2015_upd.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Frode Alfnes ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:nlsseb:2015_014 This page was generated on 2015-10-28 13:16:30