Abstract
Carbon-based import tariffs are proposed as a policy measure to reduce carbon leakage and increase the global cost-effectiveness of unilateral CO2 emission pricing. We investigate the case for carbon tariffs. For our assessment, we combine multi-region input–output and computable general equilibrium analyses based on data from the World Input–Output Database for the period 2000–2014. The multi-region input–output analysis confirms that carbon embodied in trade has increased during this period, but trade flows from Non-OECD to OECD countries became less important in relative terms since the 2007–2008 financial crisis. The computable general equilibrium analysis suggests that carbon tariffs’ efficacy in combating leakage increases in periods when trade in carbon increases. However, its potential to improve the global-cost effectiveness of unilateral emission pricing remains modest. On the other hand, we find that the potential of carbon tariffs to shift the economic burden of CO2 emission reduction from abating developed regions to non-abating developing regions increases sharply between 2000 and 2007, but declines after the financial crisis.
Highlights
Our interest in the analysis of carbon tariffs emerges from two major developments over the last two decades
Given the bleak prospects for globally coordinated stringent emission pricing, tariffs on the embodied carbon of goods imported from regions with lax or no emission regulations are considered as an important policy measure to foster the efficacy of unilateral emission pricing
We evaluate the performance of carbon tariffs along these lines by combining multiregion input–output (MRIO) and computable general equilibrium (CGE) analyses based on annual data from 2000 to 2014, provided by the World Input–Output Database (WIOD)
Summary
Our interest in the analysis of carbon tariffs emerges from two major developments over the last two decades. Böhringer et al (2014) investigate anti-leakage measures as a function of abatement coalition size and identify full border carbon adjustment as the superior measure to improve the global cost-effectiveness of unilateral emission pricing They show that border carbon adjustments can moderate output declines for EITE industries. In the period before the 2007–2008 financial crisis, industrialized OECD countries were large net importers, while developing Non-OECD countries were mostly large net exporters of embodied carbon (Wood et al 2019; Peters and Hertwich 2008; Caldeira and Davis 2011; Peters et al 2011) This raises the policy-relevant question how changing trade patterns in embodied carbon affects the case for (or against) carbon tariffs regarding (1) their potential to reduce carbon leakage, (2) their effect on the global cost-effectiveness of climate policy, and (3) the burden they impose on countries which face carbon tariffs.
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