HOW LARGE ARE THE IMPACTS OF CARBON MOTIVATED BORDER TAX ADJUSTMENTS?

Abstract

This paper discusses the size of impact of carbon motivated border tax adjustments on world trade and welfare. We report numerical simulation results which suggest that impacts on welfare, trade, and emissions will likely be small. This is because proposed measures use carbon emissions in the importing country in producing goods similar to imports rather than carbon content in calculating the size of barriers. Moreover, because border adjustments involve both tariffs and export rebates, it is the differences in emissions intensity across sector rather than emissions level which matters. Where there is no difference in emissions intensities across sectors, Lerner symmetry holds for the border adjustment and no relative effects occur.