Optimal Emission Pricing in the Presence of International Spillovers: Decomposing Leakage and Terms-of-Trade Motives

Christoph Böhringer, Andreas Lange and Thomas Rutherford ()

No 15899, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Carbon control policies in OECD countries commonly differentiate emission prices in favor of energy-intensive industries. While leakage provides a efficiency argument for differential emission pricing, the latter may be a disguised beggar-thy-neighbor policy to exploit terms of trade. Using an optimal tax framework, we propose a method to decompose the leakage motive and the terms-of-trade motive for emission price differentiation. We illustrate our method with a quantitative impact assessment of unilateral climate policies for the U.S. and EU economies. We conclude in these instances that complex optimal emission price differentiation does not substantially reduce the overall economic costs of carbon abatement compared with a simple rule of uniform emission pricing.

JEL-codes: D58 H21 Q43 R13 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-ene and nep-env
Note: EEE
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Citations: View citations in EconPapers (26)

Published as Böhringer, Christoph & Lange, Andreas & Rutherford, Thomas F., 2014. "Optimal emission pricing in the presence of international spillovers: Decomposing leakage and terms-of-trade motives," Journal of Public Economics, Elsevier, vol. 110(C), pages 101-111.

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Journal Article: Optimal emission pricing in the presence of international spillovers: Decomposing leakage and terms-of-trade motives (2014)
Working Paper: Optimal Emission Pricing in the Presence of International Spillovers: Decomposing Leakage and Terms-of-Trade Motives (2012)
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