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Title:Climate Policy and the Problem of Competitiveness: Border Tax Adjustments or Integrated Emission Trading? PDF Logo
Authors:Löschel, Andreas
Alexeeva-Talebi, Victoria
Mennel, Tim
Issue Date:2008
Series/Report no.:ZEW Discussion Papers 08-061
Abstract:In the absence of an international agreement on climate policy, unilateral carbon abatement creates two problems: It tends to have a detrimental effect on domestic competitiveness, and it leads to an increase in carbon emissions abroad (leakage). This paper analyses two policies that have recently been proposed to mitigate these problems: Border tax adjustments (BTA) and integrated emission trading (IET). The former policy levies a quantity-based, the latter an emission based duty on imports from non-abating countries. In a stylised two-country model we demonstrate that the policies address both problems. However, BTA protects domestic competitiveness more effectively, while IET achieves a greater reduction in foreign emissions. A computational general equilibrium analysis of the unilateral abatement policy adopted by the European Union confirms our theoretical insights for the sectors covered by the offsetting measures. However, the implications for the competitiveness of noncovered sectors are negative. These two effects constitute the central trade-off in the implementation of both policies.
Subjects:Border Tax Adjustments
Climate Policy
Competitiveness
Emission Trading
JEL:F18
Q48
D58
H23
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des ZEW
ZEW Discussion Papers

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