Designing Effective Carbon Border Adjustment with Minimal Information Requirements: Theory and Evidence

Alessia Camplomi, Harald Fadinger, Chiara Forlati, Sabine Stillger and Ulrich Wagner

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Carbon leakage undermines the effectiveness of unilateral carbon pricing. Taxes on import-embedded emissions, like the EU’s CBAM, prevent leakage but their product coverage is limited due to strong information asymmetries. We propose an alternative policy (LBAM) that sterilizes carbon leakage without requiring information on foreign carbon intensities. In a quantitative trade model, LBAM tariffs significantly improve over the EU’s CBAM in terms of global emissions and EU welfare. Importantly, LBAM avoids large welfare losses among EU trading partners that would result if CBAM were extended to all sectors. Combining LBAM tariffs with equivalent export subsidies reinforces these advantages.

Keywords: Carbon leakage; Carbon Border Adjustment; C02 tax; Trade policy (search for similar items in EconPapers)
JEL-codes: F13 F64 Q54 Q56 (search for similar items in EconPapers)
Pages: 69
Date: 2024-01, Revised 2025-07
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2024_495v3

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