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Measures to Enhance the Effectiveness of International Climate Agreements: The Case of Border Carbon Adjustments

Alaa Al Khourdajie () and Michael Finus ()

No 2020-04, Graz Economics Papers from University of Graz, Department of Economics

Abstract: Actions on climate change which are not supported by all countries are not very effective. However, full participation in a global climate treaty with meaningful emission reductions is difficult to achieve. The non-excludability of the public good mitigation provides an incentive to abstain from global action. Moreover, carbon leakage renders it unattractive to join a treaty without full participation. We study whether and under which conditions border carbon adjustments (BCAs) can mitigate free-riding and reduce carbon leakage in a simple strategic trade model. We show that BCAs can lead to large stable climate agreements, including full participation, associated with large global welfare gains if treaties do not restrict membership (open membership), as this is typical for environmental agreements. We caution against restricting accession to treaties (exclusive membership), as this is typical for trade agreements, which may serve individual but not global interests.

Keywords: self-enforcing international climate agreements; international trade; border carbon adjustments (search for similar items in EconPapers)
JEL-codes: C71 D62 F18 H23 H41 Q54 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-ene, nep-env and nep-int
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