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Border Carbon Adjustments and the Potential for Protectionism

Author

Listed:
  • Peter Holmes

    (Department of Economics, University of Sussex)

  • Tom Reilly
  • Jim Rollo

    (Politics and Contemporary European Studies, University of Sussex)

Abstract

Balancing legitimate fears that carbon leakage could undermine the impact of any global climate change agreement are countervailing fears that leakage will be the excuse for protectionism in the guise of “Border Carbon Adjustments”. This would have dangers for the world trading system, risking disputes due to ambiguities in the details of WTO rules over what types of border measures are potentially and actually admissible. Even with good quality data, there is considerable potential for judgemental discretion, and hence opportunistic manipulation, in estimating the carbon charges to levy on an imported product. This is even with agreement on whether to use importer or exporter coefficients. A clear distinction needs to be made between environmental and competitiveness motives for border adjustments. The key argument is that the traditional symmetry between origin based taxes (production) and other charges and those based on the destination (consumption) principle breaks down in the case of carbon charges. This paper explores the potential for regional agreements to ensure origin as the basis for carbon levies in the aftermath of the Copenhagen Accord, while recognising the challenges that this poses for the mutual recognition of emissions regimes in particular.

Suggested Citation

  • Peter Holmes & Tom Reilly & Jim Rollo, 2010. "Border Carbon Adjustments and the Potential for Protectionism," Working Paper Series 0610, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:0610
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    Cited by:

    1. Christoph Böhringer & Knut Einar Rosendahl & Halvor Storrøsten, 2021. "Smart hedging against carbon leakage [An overview of the GTAP 9 data base]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(107), pages 439-484.
    2. Böhringer, Christoph & Rosendahl, Knut Einar & Storrøsten, Halvor Briseid, 2017. "Robust policies to mitigate carbon leakage," Journal of Public Economics, Elsevier, vol. 149(C), pages 35-46.
    3. Alberto Gago & Xavier Labandeira & Xiral López Otero, 2014. "A Panorama on Energy Taxes and Green Tax Reforms," Hacienda Pública Española / Review of Public Economics, IEF, vol. 208(1), pages 145-190, March.
    4. Antimiani, Alessandro & Costantini, Valeria & Kuik, Onno & Paglialunga, Elena, 2016. "Mitigation of adverse effects on competitiveness and leakage of unilateral EU climate policy: An assessment of policy instruments," Ecological Economics, Elsevier, vol. 128(C), pages 246-259.
    5. David F. Drake, 2018. "Carbon Tariffs: Effects in Settings with Technology Choice and Foreign Production Cost Advantage," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 667-686, October.
    6. Frédéric Branger, Philippe Quirion, Julien Chevallier, 2017. "Carbon Leakage and Competitiveness of Cement and Steel Industries Under the EU ETS: Much Ado About Nothing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    7. George David Banks & Timothy Fitzgerald, 2020. "A sectoral approach allows an artful merger of climate and trade policy," Climatic Change, Springer, vol. 162(2), pages 165-173, September.
    8. Sheldon, Ian & McCorriston, Steve, 2014. "Climate Policy and Border Measures: The Case of the US Aluminum Industry," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169544, Agricultural and Applied Economics Association.
    9. Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2015. "Mitigating carbon leakage: Combining output-based rebating with a consumption tax," ZenTra Working Papers in Transnational Studies 54 / 2015, ZenTra - Center for Transnational Studies.
    10. Shen, Hongtao & Yang, Qing & Luo, Le & Huang, Nan, 2023. "Market reactions to a cross-border carbon policy: Evidence from listed Chinese companies," The British Accounting Review, Elsevier, vol. 55(1).
    11. Miria A. Pigato, 2019. "Fiscal Policies for Development and Climate Action," World Bank Publications - Books, The World Bank Group, number 31051.
    12. Fouré, Jean & Guimbard, Houssein & Monjon, Stéphanie, 2016. "Border carbon adjustment and trade retaliation: What would be the cost for the European Union?," Energy Economics, Elsevier, vol. 54(C), pages 349-362.
    13. Madison Condon & Ada Ignaciuk, 2013. "Border Carbon Adjustment and International Trade: A Literature Review," OECD Trade and Environment Working Papers 2013/6, OECD Publishing.
    14. Schinko, Thomas & Bednar-Friedl, Birgit & Steininger, Karl W. & Grossmann, Wolf D., 2014. "Switching to carbon-free production processes: Implications for carbon leakage and border carbon adjustment," Energy Policy, Elsevier, vol. 67(C), pages 818-831.
    15. Jean Fouré & Houssein Guimbard & Stéphanie Monjon, 2013. "Border Carbon Ajustment in Europe and Trade Retaliation: What would be the Cost for European Union?," Working Papers 2013-34, CEPII research center.
    16. Zhang, Zengkai & Zhu, Kunfu, 2017. "Border carbon adjustments for exports of the United States and the European Union: Taking border-crossing frequency into account," Applied Energy, Elsevier, vol. 201(C), pages 188-199.
    17. Melanie Hecht & Wolfgang Peters, 2019. "Border Adjustments Supplementing A Cap And Trade System To Combat Climate Change," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 10(04), pages 1-21, November.
    18. Sakai, Marco & Barrett, John, 2016. "Border carbon adjustments: Addressing emissions embodied in trade," Energy Policy, Elsevier, vol. 92(C), pages 102-110.

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    More about this item

    Keywords

    Competitiveness; carbon leakage; cap-and-trade (C&T); trade policy; WTO and regionalism.;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment

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