Cost-effective unilateral climate policy design: Size matters

Christoph Böhringer, Carolyn Fischer, Knut Einar Rosendahl*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Given the bleak prospects for a global agreement on mitigating climate change, pressure for unilateral abatement is increasing. A major challenge is emissions leakage. Border carbon adjustments and output-based allocation of emissions allowances can increase effectiveness of unilateral action but introduce distortions of their own. We assess antileakage measures as a function of abatement coalition size. We first develop a partial equilibrium analytical framework to see how these instruments affect emissions within and outside the coalition. We then employ a computable general equilibrium model of international trade and energy use to assess the strategies as the coalition grows. We find that full border adjustments rank first in global cost-effectiveness, followed by import tariffs and output-based rebates. The differences across measures and their overall appeal decline as the abatement coalition grows. In terms of cost, the coalition countries prefer border carbon adjustments; countries outside the coalition prefer output-based rebates.

Original languageEnglish
Pages (from-to)318-339
Number of pages22
JournalJournal of Environmental Economics and Management
Volume67
Issue number3
DOIs
Publication statusPublished - 2014

Keywords

  • Border carbon adjustments
  • Emissions leakage
  • Output-based rebates

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