Abstract:
This article studies the heterogeneity of European climate policy effects within Germany (Lower Saxony and the rest of Germany) and between other member states of the European Union (EU). It uses a global Eaton and Kortum trade model to examine the EU emissions trading system (EU ETS) with the carbon border adjustment mechanism (CBAM) and reveals significant differences in policy effects across EU countries and within Germany. Under a medium CO 2 target, CBAM has a negligible average welfare effect on the entire EU while it can eliminate the carbon leakage caused by the EU ETS. Assuming a less stringent CO 2 target, CBAM creates a welfare gain of the EU, whereas, assuming a more stringent target, it creates a welfare loss compared with the EU ETS alone. More stringent CO 2 targets in the EU ETS increase the effectiveness of CBAM in reducing carbon leakage and hence global emissions. Because official and constructed regional data sets are often incomplete, outdated or not publicly available and their compilation and resolution are not standardized, the official public provision of a comprehensive, harmonized, up-to-date regional data set, at least with federal state level resolution, is advisable.
