Notice This is not the latest version of this item. The latest version can be found at: https://hdl.handle.net/10419/330284.2
Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/330284 
Year of Publication: 
2024
Series/Report no.: 
CITP Working Paper No. 015
Publisher: 
Centre for Inclusive Trade Policy (CITP), University of Sussex Business School, Brighton
Abstract: 
The EU and the UK both control domestic greenhouse gas emissions through cap-and-trade systems – their Emission Trading Systems. For charging imports a corresponding emission price, they propose Carbon Border Adjustment Mechanisms that take the domestic price and apply it to an unlimited volume of imports. This approach sets the carbon price based solely on the domestic side of the market, leaving the total emissions driven by EU or UK consumption indeterminate. In particular, a technological change reducing the demand for domestic emissions would lower the carbon price, increase imports, and possibly increase global emissions. This paper offers graphical and analytical expositions of this problem and through simulations shows that this perverse effect is likely. It also assesses the practical challenges of combining the ETS and CBAM markets as perfectly manageable.
Document Type: 
Working Paper

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2 10419/330284.2 Revised Version: September 2025
1 10419/330284 First Version: June 2024

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