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- Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten (2024): Measures against Carbon Leakage – Combining Output-Based Allocation with Consumption Taxes
Countries with ambitious climate targets are concerned about carbon leakage to countries with more lenient or no carbon pricing. A common policy measure against leakage is output-based allocation of emissions allowances, whose effectiveness could be further enhanced by consumption taxes levied on the carbon intensity of goods. We combine theoretical and numerical analysis to derive optimal combinations of output-based allocation and consumption taxes for different assumptions on the stringency of emissions reduction targets, the coverage of emissions in regulated sectors, and their trade exposure. A key analytical finding is that output-based allocation and consumption taxes are complements rather than substitutes, i.e., the extent of output-based allocation should be higher if combined with a consumption tax. A key numerical finding is that the optimal output-based allocation and consumption tax rates should be set at almost the same rate and increase substantially with the stringency of the emissions reduction targets.
RePEc:ces:ceswps:_11102 Save to MyIDEAS - Christoph Böhringer & Knut Einar Rosendah & Halvor Briseid Storrøsten (undated): Measures against carbon leakage. Combining output-based allocation with consumption taxes
Countries with ambitious climate targets are concerned about carbon leakage to countries with more lenient or no carbon pricing. A common policy measure against leakage is output-based allocation of emissions allowances, whose effectiveness could be further enhanced by consumption taxes levied on the carbon intensity of goods. We combine theoretical and numerical analysis to derive optimal combinations of output-based allocation and consumption taxes for different assumptions on the stringency of emissions reduction targets, the coverage of emissions in regulated sectors, and their trade exposure. A key analytical finding is that output-based allocation and consumption taxes are complements rather than substitutes, i.e., the extent of output-based allocation should be higher if combined with a consumption tax. A key numerical finding is that the optimal output-based allocation and consumption tax rates should be set at almost the same rate and increase substantially with the stringency of the emissions reduction targets.
RePEc:ssb:dispap:1013 Save to MyIDEAS - Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten (2019): Smart Hedging Against Carbon Leakage
Policy makers in the EU and elsewhere are concerned that unilateral carbon pricing induces carbon leakage through relocation of emission-intensive and trade-exposed industries to other regions. A common measure to mitigate such leakage is to combine an emission trading system (ETS) with output-based allocation (OBA) of allowances to exposed industries. We first show analytically that in a situation with an ETS combined with OBA, it is optimal to impose a consumption tax on the goods that are entitled to OBA, where the tax is equivalent in value to the OBA-rate. Then, using a multi-region, multi-sector computable general equilibrium (CGE) model calibrated to empirical data, we quantify the welfare gains for the EU to impose such a consumption tax on top of its existing ETS with OBA. ... The consumption tax increases welfare whether the goods are highly exposed to leakage or not, and can hence be regarded as smart hedging against carbon leakage.
RePEc:ces:ceswps:_7915 Save to MyIDEAS - Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten (2019): Smart hedging against carbon leakage
Policy makers in the EU and elsewhere are concerned that unilateral carbon pricing induces carbon leakage through relocation of emission-intensive and trade-exposed industries to other regions. A common measure to mitigate such leakage is to combine an emission trading system (ETS) with output-based allocation (OBA) of allowances to exposed industries. We first show analytically that in a situation with an ETS combined with OBA, it is optimal to impose a consumption tax on the goods that are entitled to OBA, where the tax is equivalent in value to the OBA-rate. Then, using a multiregion, multi-sector computable general equilibrium (CGE) model calibrated to empirical data, we quantify the welfare gains for the EU to impose such a consumption tax on top of its existing ETS with OBA. ... The consumption tax increases welfare whether the goods are highly exposed to leakage or not, and can hence be regarded as smart hedging against carbon leakage.
RePEc:ssb:dispap:920 Save to MyIDEAS - Böhringer, Christoph & Rosendahl, Knut Einar & Briseid Storrøsten, Halvor (2019): Smart hedging against carbon leakage
Policy makers in the EU and elsewhere are concerned that unilateral carbon pricing induces carbon leakage through relocation of emission-intensive and trade-exposed industries to other regions. A common measure to mitigate such leakage is to combine an emission trading system (ETS) with output-based allocation (OBA) of allowances to exposed industries. ... The consumption tax increases welfare whether the goods are highly exposed to leakage or not. Thus, policy makers in regions with OBA can only gain by introducing the consumption tax. It can hence be regarded as smart hedging against carbon leakage.
RePEc:hhs:nlsseb:2019_004 Save to MyIDEAS - Christoph Boehringer & Knut Einar Rosendahl & Halvor Briseid Storroesten (2019): Smart hedging against carbon leakage
Policy makers in the EU and elsewhere are concerned that unilateral carbon pricing induces carbon leakage through relocation of emission-intensive and trade-exposed industries to other regions. A common measure to mitigate such leakage is to combine an emission trading system (ETS) with output-based allocation (OBA) of allowances to exposed industries. ... The consumption tax increases welfare whether the goods are highly exposed to leakage or not. Thus, policy makers in regions with OBA can only gain by introducing the consumption tax. It can hence be regarded as smart hedging against carbon leakage.
RePEc:old:dpaper:427 Save to MyIDEAS - Kaushal, Kevin R. & Rosendahl, Knut Einar (2017): Taxing consumption to mitigate carbon leakage
Unilateral actions to reduce CO2 emissions could lead to carbon leakage such as relocation of emission-intensive and trade-exposed industries (EITE). To mitigate such leakage, countries often supplement an emissions trading system (ETS) with free allocation of allowances to exposed industries, e.g. in the form of output-based allocation (OBA). This paper examines the welfare effects of supplementing OBA with a consumption tax on EITE goods. ... The analytical results suggest that the consumption tax would have unambiguously global welfare improving effects, and under certain conditions have welfare improving effects for the tax introducing country as well. Numerical simulations in the context of the EU ETS support the analytical findings, including that the consumption tax is welfare improving for the single country that implements the tax.
RePEc:hhs:nlsseb:2017_005 Save to MyIDEAS - Kaushal, Kevin Raj (2018): Emission price, output-based allocation and consumption tax: Optimal climate policy in the presence of another country’s climate policy
The allowances in an emission trading system (ETS) are commonly allocated for free to the sector, e.g., in the form of output-based allocation (OBA). The reason is the risk of carbon leakage exposure such as relocation of emission-intensive and trade-exposed industries (EITE). ... However, lately a third approach, combining OBA with a consumption tax, has been proposed to mitigate carbon leakage, and it has been shown to have an unambiguously global welfare improving effect. ... In particular, we investigate the case when a policymaker can choose to supplement her ETS with OBA and/or with a consumption tax, based on another policymaker’s optimal choice for her ETS. We show analytically the optimal rate of OBA and consumption tax in the presence of a climate polices in another region.
RePEc:hhs:nlsseb:2018_008 Save to MyIDEAS - Kevin R. Kaushal & Knut Einar Rosendahl (2020): Taxing Consumption to Mitigate Carbon Leakage
Unilateral actions to reduce CO2 emissions could lead to carbon leakage such as relocation of emission-intensive and trade-exposed industries (EITE). To mitigate such leakage, countries often supplement an emissions trading system (ETS) with free allocation of allowances to exposed industries, e.g. in the form of output-based allocation (OBA). This paper examines the welfare effects of supplementing OBA with a consumption tax on EITE goods. ... The analytical results suggest that the consumption tax would have unambiguously global welfare improving effects, and have welfare improving effects for the tax introducing country as well unless there are strong unfavorable terms-of-trade effects. Numerical simulations in the context of the EU ETS support the analytical findings, including that the consumption tax is welfare improving for the single country that implements the tax.
RePEc:kap:enreec:v:75:y:2020:i:1:d:10.1007_s10640-019-00392-1 Save to MyIDEAS - Christoph Böhringer & Knut Einar Rosendahl & Halvor Storrøsten (2021): Smart hedging against carbon leakage
[An overview of the GTAP 9 data base]
SUMMARYPolicy makers in the EU and elsewhere are concerned that unilateral pricing of the carbon externality induces carbon leakage through relocation of emission-intensive and trade-exposed production to other regions. A common measure to mitigate such leakage is to combine an emission trading system with output-based allocation (OBA) of allowances where the latter works as an implicit production subsidy to regulated industries. We show analytically that it is optimal to impose in addition a consumption tax on the OBA goods (i.e., goods that are entitled to OBA) at a rate which is equivalent in value to the OBA subsidy rate. The explanation is that the consumption tax alleviates excessive consumption of the OBA goods, which is a distortionary effect of introducing OBA. ... The consumption tax increases welfare whether the goods are highly exposed to leakage or not, and hence can be regarded as smart hedging against carbon leakage.
RePEc:oup:ecpoli:v:36:y:2021:i:107:p:439-484. Save to MyIDEAS