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Global assessment of the carbon leakage implications of carbon taxes on agricultural emissions

Ben Henderson and Monika Verma

No 170, OECD Food, Agriculture and Fisheries Papers from OECD Publishing

Abstract: Carbon leakage arises when emission reductions in countries applying a carbon tax are offset, partially or completely, by emission increases in countries that do not apply the tax or any other greenhouse gas (GHG) mitigation policies. Analysis using the MAGNET computable general equilibrium model indicates that a carbon tax always lowers global GHG emissions from agriculture, even when it is applied in a small group of countries, provided that producers facing the tax can make use of GHG abatement technologies. This suggests that mitigation policies should be considered in conjunction with investments in research and development on abatement practices and technologies. When a small number of countries adopt a carbon tax, about half of the direct reduction in emissions in adopting counties is offset by higher emissions in non-adopting countries; the rate of carbon leakage declines as the group of countries implementing a carbon tax expands. Higher tax rates stimulate larger global emissions reductions, but also induce higher rates of emissions leakage, thus limiting the mitigation benefits from setting higher tax rates in contexts where few countries adopt the policy.

Keywords: Climate change; Environmental policies; Mitigation; Trade (search for similar items in EconPapers)
JEL-codes: C68 F18 O13 Q11 Q17 Q54 (search for similar items in EconPapers)
Date: 2021-10-27
New Economics Papers: this item is included in nep-ene and nep-env
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