BORDER ADJUSTMENTS SUPPLEMENTING A CAP AND TRADE SYSTEM TO COMBAT CLIMATE CHANGE

2019 ◽  
Vol 10 (04) ◽  
pp. 1950017
Author(s):  
MELANIE HECHT ◽  
WOLFGANG PETERS
Keyword(s):  
Climate Change ◽  
Carbon Taxes ◽  
Cap And Trade ◽  
National Treatment ◽  
Carbon Pricing ◽  
Treatment Principle ◽  
Combat Climate Change ◽  
Global Carbon ◽  
Carbon Prices ◽  
Border Adjustments

In the post-Paris Agreement era, the number of carbon pricing initiatives in order to combat climate change grows continuously. However, carbon prices vary substantially among countries which yields negative drawbacks in terms of carbon leakage and loss of competitiveness for firms producing in countries with more stringent regulations. Border adjustments (BAs) could help tackle these negative drawbacks through harmonizing carbon prices across countries. We model a two-stage game where Country A can choose whether to implement BAs in the first stage. In the second stage, producers from both countries compete over prices in Bertrand competition or over quantities in Cournot competition. Most analyses on BAs so far focus on carbon pricing in the form of carbon taxes. However, we observe that many governments achieve their mitigation targets by implementing a cap and trade system with some kind of free allocation of emission allowances. From the current global carbon pricing situation, we identify two conditions for the compliance with the WTO’s national treatment principle that have not been dealt with in detail in previous models: (i) the application of BAs in the form of a cap and trade system and (ii) accounting for free allocation of emission allowances. Our results show that irrespective of the competition type, BAs supplementing a cap and trade system with free allocation improve welfare if the competitive pressure is high.

scholarly journals Oil shortages, climate change and collective action

2011 ◽  
Vol 369 (1942) ◽  
pp. 1748-1761 ◽  
Author(s):  
David Newbery
Keyword(s):  
Climate Change ◽  
Fossil Fuels ◽  
Limited Capacity ◽  
Carbon Taxes ◽  
High Carbon ◽  
High Carbon Content ◽  
Carbon Pricing ◽  
Green Paradox ◽  
Prisoners Dilemma ◽  
Key Issues

Concerns over future oil scarcity might not be so worrying but for the high carbon content of substitutes, and the limited capacity of the atmosphere to absorb additional CO 2 from burning fuel. The paper argues that the tools of economics are helpful in understanding some of the key issues in pricing fossil fuels, the extent to which pricing can be left to markets, the need for, and design of, international agreements on corrective carbon pricing, and the potential Prisoners’ Dilemma in reaching such agreements, partly mitigated in the case of oil by current taxes and the probable incidence of carbon taxes on the oil price. The ‘Green Paradox’, in which carbon pricing exacerbates climate change, is theoretically possible, but empirically unlikely.

scholarly journals COMBINING MULTIPLE CLIMATE POLICY INSTRUMENTS: HOW NOT TO DO IT

2010 ◽  
Vol 01 (03) ◽  
pp. 209-225 ◽  
Author(s):  
SAMUEL FANKHAUSER ◽  
CAMERON HEPBURN ◽  
JISUNG PARK
Keyword(s):  
Climate Change ◽  
Carbon Tax ◽  
Climate Change Policy ◽  
Policy Instruments ◽  
Carbon Price ◽  
Reserve Price ◽  
Cap And Trade ◽  
Change Policy ◽  
Hybrid Instruments ◽  
Carbon Prices

Putting a price on carbon is critical for climate change policy. Increasingly, policymakers combine multiple policy tools to achieve this, for example by complementing cap-and-trade schemes with a carbon tax, or with a feed-in tariff. Often, the motivation for doing so is to limit undesirable fluctuations in the carbon price, either from rising too high or falling too low. This paper reviews the implications for the carbon price of combining cap-and-trade with other policy instruments. We find that price intervention may not always have the desired effect. Simply adding a carbon tax to an existing cap-and-trade system reduces the carbon price in the market to such an extent that the overall price signal (tax plus carbon price) may remain unchanged. Generous feed-in tariffs or renewable energy obligations within a capped area have the same effect: they undermine the carbon price in the rest of the trading regime, likely increasing costs without reducing emissions. Policymakers wishing to support carbon prices should turn to hybrid instruments — that is, trading schemes with price-like features, such as an auction reserve price — to make sure their objectives are met.

scholarly journals Carbon-related border tax adjustment: mitigating climate change or restricting international trade?

2011 ◽  
Vol 10 (4) ◽  
pp. 497-525 ◽  
Author(s):  
CHRISTINE KAUFMANN ◽  
ROLF H. WEBER
Keyword(s):  
Practical Importance ◽  
Carbon Taxes ◽  
National Treatment ◽  
Trading System ◽  
Environmental Objectives ◽  
Process Compliance ◽  
Treatment Principle ◽  
Energy Taxes ◽  
Proportionality Test ◽  
Border Tax Adjustment

AbstractBorder tax adjustments in the form of carbon taxes on products from countries with lax environmental production standards or in the form of a required participation in an emissions allowances' trading system have become a heavily debated issue under WTO law. Such an adjustment might be permissible if energy taxes as indirect taxes are applied on inputs during the production process. Compliance with the Most Favoured Nation principle has less practical importance than the not-yet settled likeness discussion under the National Treatment principle. Consequently, since the compatibility of carbon-related border tax adjustment measures is partly contested, potential justifications such as the conservation of exhaustible national resources or the protection of health (Art. XX GATT) become relevant. The application of the necessity and proportionality test requires that carbon measures are tailored so as to substantially contribute to the achievement of environmental objectives and do not create any arbitrary or unjustified discrimination.

scholarly journals Effective Carbon Prices and Sub-Global Climate Cooperation

2020 ◽  
Author(s):  
Goran Dominioni
Keyword(s):  
Global Climate ◽  
Carbon Markets ◽  
Carbon Taxes ◽  
Carbon Pricing ◽  
Advantages And Disadvantages ◽  
Standard Design ◽  
Environmental Effectiveness ◽  
Design Options ◽  
Carbon Prices ◽  
Change Mitigation

Scholarly and policy interest in carbon pricing coalitions is growing. Existing research analyzes design features that can increase the environmental effectiveness and political resilience of coalitions centered around carbon taxes and carbon markets (i.e. explicit carbon pricing). This article is the first that analyzes the advantages and disadvantages of building carbon pricing coalitions around effective carbon pricing compared to the standard design that focuses on explicit carbon pricing. In this article, measures of effective carbon prices include carbon prices implemented via carbon taxes, carbon markets, fuel taxes, and fossil fuel subsidies reforms. The article describes four design options to build carbon pricing coalitions - three built on measures of effective carbon pricing and one that focuses exclusively on explicit carbon pricing - and benchmarks them against six criteria. The key results are that building carbon pricing coalitions around effective carbon prices has various advantages over the most common alternative discussed in the literature. These advantages include higher transparency, broader participation, higher legitimacy of the coalition, and more substantial involvement of Finance Ministries in climate change mitigation. These advantages might translate in comparable or even higher environmental effectiveness than coalitions that focuses exclusively on explicit carbon pricing.

A Second Act for Carbon Pricing?

2018 ◽  
pp. 205-246
Author(s):  
Barry G. Rabe
Keyword(s):  
United States ◽  
The United States ◽  
Carbon Taxes ◽  
Cap And Trade ◽  
Carbon Pricing ◽  
Political Feasibility ◽  
The Future

This chapter considers the future political viability of carbon pricing, given national and international developments since 2015. This includes a range of developments, including the Paris climate accord and major new initiatives in the United States and Canada on carbon taxes and cap-and-trade. It also revisits severance taxes and a mix of other efforts such as electricity fees and methane taxes that have emerged as possible counterparts to these carbon pricing mainstays, given their greater political feasibility.

scholarly journals Effective Carbon Prices and Sub-Global Climate Cooperation

2020 ◽  
Author(s):  
Goran Dominioni
Keyword(s):  
Global Climate ◽  
Carbon Markets ◽  
Carbon Taxes ◽  
Carbon Pricing ◽  
Advantages And Disadvantages ◽  
Standard Design ◽  
Environmental Effectiveness ◽  
Design Options ◽  
Carbon Prices ◽  
Change Mitigation

Scholarly and policy interest in carbon pricing coalitions is growing. Existing research analyzes design features that can increase the environmental effectiveness and political resilience of coalitions centered around carbon taxes and carbon markets (i.e. explicit carbon pricing). This article is the first that analyzes the advantages and disadvantages of building carbon pricing coalitions around effective carbon pricing compared to the standard design that focuses on explicit carbon pricing. Measures of effective carbon prices include carbon prices implemented via carbon taxes, carbon markets, fuel taxes, and fossil fuel subsidies reforms. The article describes four design options to build carbon pricing coalitions - three built on measures of effective carbon pricing and one that focuses exclusively on explicit carbon pricing - and benchmarks them against five criteria. The key results are that building carbon pricing coalitions around effective carbon prices has various advantages over the most common alternative discussed in the literature. These advantages include higher transparency, potential greater breadth and legitimacy of the coalition, and a more substantial involvement of Finance Ministries in climate change mitigation. These advantages might translate in comparable or even higher environmental effectiveness than coalitions that focuses exclusively on explicit carbon pricing.

scholarly journals The Political Economy of Carbon Pricing: Lessons from the Mexican Carbon Tax Experience for the Mexican Cap-and-Trade System

2021 ◽  
pp. 133-150
Author(s):  
Juan Carlos Belausteguigoitia ◽  
Vidal Romero ◽  
Alberto Simpser
Keyword(s):  
Political Economy ◽  
Carbon Tax ◽  
International Environmental Agreements ◽  
Climate Change Policy ◽  
Policy Instruments ◽  
The Political ◽  
Carbon Taxes ◽  
Cap And Trade ◽  
Carbon Pricing ◽  
Change Policy

AbstractPrice-based climate change policy instruments, such as carbon taxes or cap-and-trade systems, are known for their potential to generate desirable results such as reducing the cost of meeting environmental targets. Nonetheless, carbon pricing policies face important economic and political hurdles. Powerful stakeholders tend to obstruct such policies or dilute their impacts. Additionally, costs are borne by those who implement the policies or comply with them, while benefits accrue to all, creating incentives to free ride. Finally, costs must be paid in the present, while benefits only materialize over time. This chapter analyses the political economy of the introduction of a carbon tax in Mexico in 2013 with the objective of learning from that process in order to facilitate the eventual implementation of an effective cap-and-trade system in Mexico. Many of the lessons in Mexico are likely to be applicable elsewhere. As countries struggle to meet the goals of international environmental agreements, it is of utmost importance that we understand the conditions under which it is feasible to implement policies that reduce carbon emissions.

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