Carbon border adjustments, climate clubs, and subsidy races when climate policies vary

Kimberly Clausing and Catherine Wolfram
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Catherine Wolfram: University of California, Berkeley

No WP23-3, Working Paper Series from Peterson Institute for International Economics

Abstract: Jurisdictions adopt heterogeneous climate policies that vary in terms of both ambition and policy approach, with some jurisdictions pricing carbon and others subsidizing clean production. We distinguish two types of policy spillovers associated with diverse policy approaches to climate change. First, when countries have different levels of climate ambition, free riders will benefit at the expense of more committed countries. Second, when countries pursue different approaches, carbon-intensive producers within cost-imposing jurisdictions will be at a relative competitive disadvantage compared with producers in subsidizing jurisdictions. Carbon border adjustments and climate clubs are attempts to respond to these policy spillovers, but when countries have divergent policy approaches, one policy alone will not be able to address both types of spillovers. The authors also consider the policy dynamics that result from carbon border adjustments and climate clubs; both have the potential to encourage upward harmonization of climate policy, but they come with risks. Further, the pressures of international competition in the presence of divergent climate policy approaches may result in subsidy races, which come with their own potential risks and benefits.

Keywords: carbon border adjustments; climate clubs; Pigovian taxes and subsidies; international competitiveness; trade and environment (search for similar items in EconPapers)
JEL-codes: F18 H23 Q54 Q58 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-res
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Carbon Border Adjustments, Climate Clubs, and Subsidy Races When Climate Policies Vary (2023)
Working Paper: Carbon Border Adjustments, Climate Clubs, and Subsidy Races When Climate Policies Vary (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:iie:wpaper:wp23-3

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