Impact of carbon tariffs on price competitiveness in the era of global value chain

Changjiang Yang and Xiaoxuan Yan

Applied Energy, 2023, vol. 336, issue C, No S0306261923001691

Abstract: More and more countries are joining the discussion on climate mitigation through a range of emissions reduction policies such as carbon pricing. However, differences in carbon prices and policy intensity have led countries to worry about issues such as unilateral competitiveness loss and carbon leakage, and carbon border adjustment mechanisms have emerged. This paper analyzes the impact of carbon border adjustment on price competitiveness with the carbon tariff system to be implemented by the EU and the US. First, we obtain the cost pass-through rates of 14 regions-3 sectors through the panel regression of error correction model, and corrects the input–output price model for incomplete cost transmission. Combined with global inter-industry linkages, the impact of carbon tariff levy on the real effective exchange rate, the main indicator of price competitiveness of each region and industry, is examined for the EU CBAM and the US Clean Competition Act. On this basis, we use the effective rate of protection which is adjusted with global value chain, to analyze the positive effect of carbon tariff policy on domestic producers. Finally, the welfare effects of residential households are estimated, after quantity adjustment using the real effective exchange rate. The results show that when only direct carbon tariffs are analyzed, the impact of the US Clean Competition Act is greater than that of the EU CBAM for Australia and Canada, and for Japan and other regions, the sanctioning effect of the EU CBAM is more significant. When considering the impact of cumulative tariffs in the upstream, the output prices of countries further increase, and the cumulative carbon tariffs of the US under the two scenarios are as high as 0.61 % and 0.81 %. According to the results of the real effective exchange rate, the price competitiveness of the US and Russia decreases. The effective rate of carbon tariff protection is negative in all countries except for the implementers of carbon tariffs - the US and the EU, which means that the producers lose value added due to carbon tariffs. Finally, the welfare effects analysis shows that the two largest causes of welfare losses are the increase in domestic prices and the prices of imported goods from the US.

Keywords: Carbon tariff; Input-output model; Cumulative tariff; Effective rate of protection; Welfare effect (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0306261923001691
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:appene:v:336:y:2023:i:c:s0306261923001691

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/bibliographic
http://www.elsevier. ... 405891/bibliographic

DOI: 10.1016/j.apenergy.2023.120805

Access Statistics for this article

Applied Energy is currently edited by J. Yan

More articles in Applied Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().