Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/243158 
Year of Publication: 
2021
Citation: 
[Journal:] Ecological Economics [ISSN:] 0921-8009 [Volume:] 189 [Article No.:] 107168 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2021
Publisher: 
Elsevier, Amsterdam
Abstract: 
Different options for a reform of the EU Emissions Trading System are discussed to ensure carbon price incentives for mitigation options in the basic materials sector, while minimizing carbon leakage risks. This paper quantifies carbon leakage risks, distributional implications, and additional revenues associated with an import-only border carbon adjustment (BCA), a symmetric (import and export) BCA, and an excise for embodied emissions at a fixed benchmark level in combination with continued free allocation. We estimate the product-level carbon intensities for 4400 commodity groups, compute maximal implied price changes due to full carbon pricing, and calculate cost increases relative to gross value added to assess the scale of carbon leakage risks. We show, first, that around 10% of EU exports and 5% of all domestic manufacturing sales meet the criteria for carbon leakage risk under an incomplete BCA at a carbon price of 30 EUR/t. Second, the distributional implications of consistent carbon pricing of basic materials are small and progressive. Finally, an excise could generate revenues of around 20 billion euros that may be used towards climate action. Our results on potential carbon leakage risks and their mitigation can inform responsible policy making to shape the EU pathway towards climate neutrality.
Subjects: 
Emissions trading
Border carbon adjustment (BCA)
Excise duty
Carbon intensity
Carbon leakage
Distributional effects
Fiscal revenues
JEL: 
F18
C67
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

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