Scandinavian Working Papers in Economics

Working Paper Series,
Norwegian University of Life Sciences, School of Economics and Business

No 08-2015: Targeted carbon tariffs. Carbon leakage and welfare effects

Christoph Böhringer, Brita Bye, Taran Fæhn and Knut Einar Rosendahl ()
Additional contact information
Christoph Böhringer: Department of Economics, University of Oldenburg, Germany
Brita Bye: Statistics Norway, Research Department
Taran Fæhn: Statistics Norway, Research Department
Knut Einar Rosendahl: School of Economics and Business, Norwegian University of Life Sciences, Postal: Norwegian University of Life Sciences, School of Economics and Business, P.O. Box 5003 NMBU, N-1432 Ås, Norway

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-codes: D61; H20; Q43; Q54

29 pages, March 30, 2015

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