Border Carbon Adjustments: Rationale, Design and Impact

Michael Keen, Ian Parry and James Roaf

No 2021/239, IMF Working Papers from International Monetary Fund

Abstract: This paper assesses the rationale, design, and impacts of border carbon adjustments (BCAs). Large disparities in carbon pricing between countries raise concerns about competitiveness and emissions leakage. BCAs are potentially the most effective domestic instrument for addressing these challenges—but design details are critical. For example, limiting coverage of the BCA to energy-intensive, trade-exposed industries facilitates administration, and initially benchmarking BCAs on domestic emissions intensities would ease the transition for trading partners with emission-intensive production. It is also important to consider how to apply BCAs across countries with different approaches to emissions mitigation. BCAs alone do not solve the free-rider problem in carbon pricing, but might be a step to an effective international carbon price floor.

Keywords: border carbon adjustment; climate mitigation; carbon pricing; competitiveness; emissions leakage; allowance allocation; design issues; World Trade Organization rules.; emissions mitigation; design detail; impacts of border carbon adjustments; EITE industry; Greenhouse gas emissions; Tariffs; Competition; Export subsidies; Global (search for similar items in EconPapers)
Pages: 42
Date: 2021-09-27
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-reg
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Journal Article: Border carbon adjustments: rationale, design and impact (2022)
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