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Mitigating carbon leakage: Combining output-based rebating with a consumption tax

Christoph Böhringer, Knut Einar Rosendahl () and Halvor Briseid Storrøsten ()
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Halvor Briseid Storrøsten: Statistics Norway, Oslo

No V-380-15, Working Papers from University of Oldenburg, Department of Economics

Abstract: Unilateral climate policy induces carbon leakage through the relocation of emission-intensive and trade-exposed industries to regions with no or more lenient emission regulation. Both analytical and numerical studies suggest that emission pricing combined with border carbon adjustments may be a second-best instrument, and more cost-effective than output-based rebating, in which case domestic output is indirectly subsidized. No countries have so far imposed border carbon adjustments, while variants of output-based rebating have been implemented. In this paper we demonstrate that it is welfare improving for a region who has already implemented emission pricing along with output-based rebating for emission-intensive and trade-exposed goods to also introduce a consumption tax on these goods. Moreover, we show that combining output-based rebating with a consumption tax can be equivalent with border carbon adjustments.

Keywords: Carbon leakage; output-based rebating; border carbon adjustments; consumption tax (search for similar items in EconPapers)
JEL-codes: D61 H2 Q54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
Date: 2015-05, Revised 2015-05
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Published in Oldenburg Working Papers V-380-15

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http://www.uni-oldenburg.de/fileadmin/user_upload/ ... ete/vwl/V-380-15.pdf First version, 2015 (application/pdf)

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