THE EXPANSION OF CARBON BORDER ADJUSTMENT UNDER THE PARIS FRAMEWORK: ALTERNATIVE DESIGNS AND EFFICIENCY-EQUITY TRADE-OFFS

Xilong Yan and Ying Fan
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Xilong Yan: School of Economics and Management, Beihang University, Beijing 100191, P. R. China2MOE Laboratory for Low-Carbon Intelligent Governance, Beihang University, Beijing 100191, P. R. China
Ying Fan: School of Economics and Management, Beihang University, Beijing 100191, P. R. China2MOE Laboratory for Low-Carbon Intelligent Governance, Beihang University, Beijing 100191, P. R. China

Climate Change Economics (CCE), 2025, vol. 16, issue 03, 1-35

Abstract: Climate actions under the Paris Agreement are characterized by regionally fragmented policies with asymmetric stringencies. The resulting carbon leakage and competitiveness concerns motivate countries to adopt carbon border adjustment (CBA) to complement domestic carbon pricing. A globally acceptable CBA regime should not only facilitate global abatement, but also require equitable burden-sharing. We therefore investigate the efficiency and equity dimensions of two alternative CBAs in a generalized multilateral context. We reveal a typical “efficiency-equity†trade-off between two CBA regimes. The standard CBA, which equalizes subjected carbon prices among different sourced goods, is mainly justified by higher environmental effectiveness, but has the pitfall of driving inequitable competitiveness outcomes. By contrast, an alternative CBA approach equalizing cost increases from carbon pricing could result in more balanced competitiveness effects and less trade disturbance, but it is somewhat compromising in emission reductions. Overall, however, neither of the two CBAs provides substantial cost savings for global abatement.

Keywords: The Paris Agreement; carbon border adjustment (CBA); competitiveness; efficiency-equity trade-off (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S2010007825500113

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