Optimal emission pricing in the presence of international spillovers: Decomposing leakage and terms-of-trade motives

Christoph Böhringer, Andreas Lange and Thomas F. Rutherford

Journal of Public Economics, 2014, vol. 110, issue C, 101-111

Abstract: Carbon leakage provides an efficiency argument for differentiated emission prices in favor of emission-intensive and trade-exposed sectors under unilateral climate policy. However, differential emission pricing can be used as a beggar-thy-neighbor policy to exploit terms of trade. Adopting an optimal tax framework, we propose a method to decompose the leakage and terms-of-trade motives for emission price differentiation. We employ our method for the quantitative impact assessment of unilateral climate policy based on empirical data. We find that the leakage motive yields only small efficiency gains compared to uniform emission pricing. Likewise, the terms-of-trade motive has rather limited potential for strategic burden shifting. We conclude that in many cases the simple first-best rule of uniform emission pricing remains a practical guideline for unilateral climate policy design.

Keywords: Optimal taxation; Emission leakage; Terms of trade (search for similar items in EconPapers)
JEL-codes: D58 H21 Q43 R13 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (50)

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Related works:
Working Paper: Optimal Emission Pricing in the Presence of International Spillovers: Decomposing Leakage and Terms-of-Trade Motives (2012)
Working Paper: Optimal Emission Pricing in the Presence of International Spillovers: Decomposing Leakage and Terms-of-Trade Motives (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:110:y:2014:i:c:p:101-111

DOI: 10.1016/j.jpubeco.2013.11.011

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