Would border carbon adjustments prevent carbon leakage and heavy industry competitiveness losses? Insights from a meta-analysis of recent economic studies

Abstract

The efficiency of unilateral climate policies may be hampered by carbon leakage and competitiveness losses. A widely discussed policy option to reduce leakage and protect competitiveness of heavy industries is to impose border carbon adjustments (BCAs). The estimation of carbon leakage as well as the assessment of different policy options led to a substantial body of literature in energy-economic modeling.In order to give a quantitative overview on the most recent research of the topic, we conduct a meta-analysis on 25 studies, altogether providing 310 estimates of carbon leakage ratio according to different assumptions and models. The typical range of carbon leakage estimates are from 5% to 25% (mean 14%) without policy and from −5% to 15% (mean 6%) with BCAs.A meta-regression analysis is performed to further investigate the impact of different assumptions on the leakage estimates. The decrease of the leakage ratio with the size of the coalition is confirmed and quantified. Among the BCA options, the extension of BCAs to all sectors and the inclusion of export rebates are the most efficient features in the meta-regression model to reduce the leakage ratio. All other parameters being constant, BCAs reduce leakage ratio by 6 percentage points.