Unilateral consumption-based carbon taxes and negative leakage

Thomas Eichner and Rüdiger Pethig

Resource and Energy Economics, 2015, vol. 40, issue C, 127-142

Abstract: We investigate the performance of a consumption-based carbon tax – implemented by full border carbon adjustment – as an instrument of unilateral climate damage mitigation in a two-period two-country general equilibrium model with a finite stock of fossil fuel. The implementation of that tax in the first period reduces the first-period emissions in the taxing and non-taxing country (negative within period leakage) if income effects are sufficiently weak. Otherwise, it increases the first-period emissions in both countries (green paradox). That result contrasts with the case of a unilateral production-based carbon tax, in which the leakage rate is always positive and possibly exceeds 100%.

Keywords: Consumption-based carbon tax; Production-based carbon tax; Leakage (search for similar items in EconPapers)
JEL-codes: F11 F18 Q54 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:40:y:2015:i:c:p:127-142

DOI: 10.1016/j.reseneeco.2015.03.002

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