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Cost-Effective Climate Policy Design: Size Matters

Author

Listed:
  • Christoph Böhringer

    (Department of Economics, University of Oldenburg)

  • Carolyn Fischer
  • Knut Einar Rosendahl
Abstract
Given the bleak prospects for a global agreement on coordinated policies to mitigate climate change, political pressure is increasing among industrialized countries for unilateral abatement. A major challenge thereby is the appropriate response to the threat of emissions leakage. Border carbon adjustments and output-based allocation of emissions allowances can increase effectiveness of unilateral action but introduce distortions of their own. We assess the relative attractiveness of these anti-leakage measures as a function of the abatement coalition size. We first develop a partial equilibrium analytical framework to gain generic insights on how these instruments affect emissions within and outside the coalition. We then employ a large-scale computable general equilibrium model of international trade and energy use to assess the cost-effectiveness of alternative anti-leakage strategies as the coalition evolves toward global coverage. We find that full border adjustments rank first in global cost-effectiveness, followed by import tariffs and then output-based rebates. The differences across anti-leakage measures and the overall appeal of such measures decline with the size of the abatement coalition. In terms of cost incidence, the abatement coalition prefers border carbon adjustments over output-based rebates; the opposite holds true for countries outside the coalition.

Suggested Citation

  • Christoph Böhringer & Carolyn Fischer & Knut Einar Rosendahl, 2011. "Cost-Effective Climate Policy Design: Size Matters," Working Papers V-339-11, University of Oldenburg, Department of Economics, revised Jul 2011.
    • Handle: RePEc:old:dpaper:339
    as

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    File URL: http://www.vwl.uni-oldenburg.de/download/DP_V-339_11.pdf
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    References listed on IDEAS

    as
    1. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
    2. Christoph Böhringer & Thomas F. Rutherford, 2010. "The Costs of Compliance: A CGE Assessment of Canada’s Policy Options under the Kyoto Protocol," The World Economy, Wiley Blackwell, vol. 33(2), pages 177-211, February.
    3. Boehringer Christoph & Fischer Carolyn & Rosendahl Knut Einar, 2010. "The Global Effects of Subglobal Climate Policies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-35, December.
    4. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
    5. Azusa OKAGAWA & Kanemi BAN, 2008. "Estimation of substitution elasticities for CGE models," Discussion Papers in Economics and Business 08-16, Osaka University, Graduate School of Economics.
    6. Ben Lockwood & John Whalley, 2010. "Carbon‐motivated Border Tax Adjustments: Old Wine in Green Bottles?," The World Economy, Wiley Blackwell, vol. 33(6), pages 810-819, June.
    7. Fischer, Carolyn & Fox, Alan K., 2012. "Comparing policies to combat emissions leakage: Border carbon adjustments versus rebates," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 199-216.
    8. Fischer, Carolyn & Fox, Alan K., 2009. "Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates," RFF Working Paper Series dp-09-02, Resources for the Future.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Olga Kiuila, 2013. "Regional economic effects of differentiated climate action," ERSA conference papers ersa13p334, European Regional Science Association.
    2. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2012. "Efficiency and Equity Implications of Alternative Instruments to Reduce Carbon Leakage," Working Papers V-346-12, University of Oldenburg, Department of Economics, revised Jun 2012.
    3. Böhringer, Christoph & Fischer, Carolyn & Rosendahl, Knut Einar, 2014. "Cost-effective unilateral climate policy design: Size matters," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 318-339.
    4. Böhringer, Christoph & Bye, Brita & Fæhn, Taran & Rosendahl, Knut Einar, 2012. "Alternative designs for tariffs on embodied carbon: A global cost-effectiveness analysis," Energy Economics, Elsevier, vol. 34(S2), pages 143-153.
    5. Christoph Bohringer & Knut Einar Rosendahl & Jan Schneider, 2014. "Unilateral Climate Policy: Can OPEC Resolve the Leakage Problem?," The Energy Journal, , vol. 35(4), pages 79-100, October.
    6. repec:old:wpaper:355 is not listed on IDEAS
    7. Fischer, Carolyn & Fox, Alan K., 2012. "Climate policy and fiscal constraints: Do tax interactions outweigh carbon leakage?," Energy Economics, Elsevier, vol. 34(S2), pages 218-227.
    8. Böhringer, Christoph & Carbone, Jared C. & Rutherford, Thomas F., 2012. "Unilateral climate policy design: Efficiency and equity implications of alternative instruments to reduce carbon leakage," Energy Economics, Elsevier, vol. 34(S2), pages 208-217.
    9. repec:old:wpaper:346 is not listed on IDEAS
    10. repec:zbw:hohpro:346 is not listed on IDEAS
    11. Madison Condon & Ada Ignaciuk, 2013. "Border Carbon Adjustment and International Trade: A Literature Review," OECD Trade and Environment Working Papers 2013/6, OECD Publishing.
    12. repec:zbw:hohpro:355 is not listed on IDEAS
    13. Antimiani, Alessandro & Costantini, Valeria & Martini, Chiara & Salvatici, Luca & Tommasino, Maria Cristina, 2013. "Assessing alternative solutions to carbon leakage," Energy Economics, Elsevier, vol. 36(C), pages 299-311.
    14. Leszek Kąsek & Olga Kiuila & Krzysztof Wójtowicz & Tomasz Żylicz, 2012. "Economic effects of differentiated climate action," Working Papers 2012-12, Faculty of Economic Sciences, University of Warsaw.
    15. Boguslawa Bek-Gaik & Anna Surowiec, 2022. "The Quality of Business Model Disclosure in Integrated Reporting: Evidence from Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 3-26.

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    More about this item

    Keywords

    emissions leakage; border carbon adjustments; output-based allocation;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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