Unilateral climate policy design: Efficiency and equity implications of alternative instruments to reduce carbon leakage

Christoph Böhringer, Jared Carbone and Thomas F. Rutherford

Energy Economics, 2012, vol. 34, issue S2, S208-S217

Abstract: Global cost-effectiveness of unilateral emission abatement can be seriously hampered by carbon leakage. We assess three widely discussed proposals for leakage reduction: carbon-motivated border tax adjustments, industry exemptions from carbon regulation, and output-based allocation of emission allowances. We find that none of these measures amounts to a “magic bullet” when both efficiency and equity criteria matter. Compared to unilateral emission pricing alone, border carbon adjustments are most effective in leakage reduction and promotion of global cost-effectiveness but can markedly exacerbate regional inequality; exemptions and output-based allocation tend to avoid distributional pitfalls but are less effective in leakage reduction and global cost savings; exemptions may even decrease global cost-effectiveness of unilateral emission abatement.

Keywords: Unilateral climate policy; Leakage; Border carbon adjustments; Output-based allocation; Exemptions; Efficiency–equity trade-offs (search for similar items in EconPapers)
JEL-codes: D61 H2 Q2 Q43 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (87)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:34:y:2012:i:s2:p:s208-s217

DOI: 10.1016/j.eneco.2012.09.011

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