Carbon Border Adjustments, Climate Clubs, and Subsidy Races When Climate Policies Vary

Kimberly Clausing and Catherine Wolfram

Journal of Economic Perspectives, 2023, vol. 37, issue 3, 137-62

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

JEL-codes: H23 O13 Q51 Q54 Q58 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: 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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DOI: 10.1257/jep.37.3.137

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