Border Tax Adjustments: A feasible way to address nonparticipation in Emission Trading

R. Ismer and Karsten Neuhoff ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: CO2 emission certificates internalise effects of fossil fuel consumption on global climate and sea levels. If they are only implemented in some countries, then their effectiveness is limited; Consumption, production and investment decisions do not reach the optimal allocation, production with inefficient technologies in non-participating countries can even be increased. Furthermore industry lobbying might result in limited application of CO2 emission certificates or less ambitious reduction targets. Border tax adjustment at the level of additional costs incurred for procurement of CO2 emission permits during production of processed materials using best available technology limits the distortions. We show that it can be compatible with WTO constraints. Crucial features of a practicable implementation are simplicity achieved by a focus on the CO2 emissions caused by processed materials and a separate treatment of electric energy input to take account of regionally varying fuel mixes.

Keywords: Border Tax; Emission Trading; WTO law; International trade (search for similar items in EconPapers)
JEL-codes: F18 H23 K32 K33 (search for similar items in EconPapers)
Pages: 42
Date: 2004-01
New Economics Papers: this item is included in nep-env and nep-law
Note: CMI36, IO
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Citations: View citations in EconPapers (24)

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