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Border Carbon Adjustments with Endogenous Assembly Locations

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  • Cheng, Haitao

Abstract

In this study, we develop a two-country model to examine whether border carbon adjustments (BCAs) are more effective than emission tax alone in preventing carbon leakage and decreasing global emissions with endogenous assembly locations. Specifically, we explore three policy regimes: i) emission taxes alone (no BCAs), ii) emission taxes and carbon-content tariffs (partial BCAs), and iii) emission taxes, carbon-content tariffs, and tax rebates on exports (full BCAs). We find that the effectiveness of BCAs depends on whether BCAs induce assembly relocation. If assembly relocation does not occur, BCAs prevent carbon leakage and decrease global emissions. However, if BCAs induce assembly relocation, carbon leakage may occur with partial BCAs, and global emissions may be higher with full BCAs.

Suggested Citation

  • Cheng, Haitao, 2021. "Border Carbon Adjustments with Endogenous Assembly Locations," Discussion paper series HIAS-E-111, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    • Handle: RePEc:hit:hiasdp:hias-e-111
    Note: This version: August 25, 2021
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    More about this item

    Keywords

    Abatement Investments; Border Carbon Adjustments; Carbon Leakage; Endogenous Assembly Locations; International Oligopoly;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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