Abstract
As an alternative measure for the proposal of border tax adjustments (BTAs) advocated by the countries that seek to abate CO2 emissions (hereafter referred to as ‘abating countries’), export carbon tax (ECT) voluntarily conducted by the developing countries has been widely discussed in recent years. This paper uses the multi-regional and multi-commodity computable general equilibrium (CGE) model and the GTAP8.1 database to investigate the economic and environmental effects of carbon tariffs on Chinese exports. The following three policy scenarios are considered: 1) the abating countries implement cap-and-trade emission programs without BTAs; 2) the unilaterally abating countries levy import tariffs and export subsidies on non-abating countries; and, 3) the abating countries implement unilateral climate policies combined with ECT imposed by China. The ECT policy of China is evaluated with a carbon price set at 17US$/t-CO2. Results illustrate that the ECT voluntarily implemented by China is ineffective in reducing its domestic CO2 emissions. Moreover, ECT merely has a minor impact on global emissions. Finally, the competitiveness of China's energy-intensive and trade-exposed (EITE) industries suffers substantial losses if export tariffs are imposed. However, China's gains in terms of welfare and gross domestic product (GDP) would be slightly improved if an ECT policy is implemented, compared to the scenario where China is subjected to BTAs levied by the abating coalition. In the light of the tradeoff between tariff revenue for welfare and competiveness losses of the EITE industries, it is therefore difficult to conclude that carbon tariff on Chinese exports is an alternative policy to BTAs.
Highlights
In recent years, two interrelated problems, carbon leakage and international competitiveness, have become central concerns in the domestic discussions in the major developed countries implementing or proposing to implement unilateral emissions abating policies
We present the simulation results from four major angles: carbon leakage, welfare changes, gross domestic product (GDP)
The variation reveals a substantial difference in marginal reduction cost across the abating coalition due to the stringency of the carbon reduction target that applies to regulated economic activities
Summary
Two interrelated problems, carbon leakage and international competitiveness, have become central concerns in the domestic discussions in the major developed countries implementing or proposing to implement unilateral emissions abating policies To address these issues, a number of academic studies as well as political debate have proposed the use of border tax adjustments (BTAs). It is worth pointing out that their analysis, perhaps due to the data constraint, does not take into account the terms-of-trade effects through the competitiveness channel in the international market This is bound to result in underestimation of the negative impact on both gross domestic product (GDP) and export by EITE industries, the critical parameters in the feasibility study on ECT.
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