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Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates

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Author Info
Fischer, Carolyn () (Resources for the Future)
Fox, Alan K.

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Abstract

We explore conditions determining which anti-leakage policies might be more effective complements to domestic greenhouse gas emissions regulation. We consider four policies that could be combined with unilateral emissions pricing to counter effects on international competitiveness: a border tax on imports, a border rebate for exports, full border adjustment, and a domestic production rebate (as might be implemented with output-based allocation of emissions allowances). Each option faces different potential legal hurdles in international trade law; each also has different economic impacts. While all have the potential to support domestic production, none is necessarily effective at reducing global emissions. Nor is it possible to rank order the options. In each case, the effectiveness depends on the relative emissions rates, elasticities of substitution, and consumption volumes. We illustrate these results with simulations for the energy-intensive sectors of two different economies, the United States and Canada.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-09-02.

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Date of creation: 15 Feb 2009
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Handle: RePEc:rff:dpaper:dp-09-02

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Related research
Keywords: environmental tax; rebate; border tax adjustment; emissions leakage; climate;

Find related papers by JEL classification:
Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
H2 - Public Economics - - Taxation, Subsidies, and Revenue
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Ismer, R. & Neuhoff, K., 2004. "Border Tax Adjustments: A feasible way to address nonparticipation in Emission Trading," Cambridge Working Papers in Economics 0409, Faculty of Economics, University of Cambridge. [Downloadable!]
  2. Green, Andrew, 2006. "Trade rules and climate change subsidies," World Trade Review, Cambridge University Press, vol. 5(03), pages 377-414, November. [Downloadable!]
  3. van Asselt, Harro & Biermann, Frank, 2007. "European emissions trading and the international competitiveness of energy-intensive industries: a legal and political evaluation of possible supporting measures," Energy Policy, Elsevier, vol. 35(1), pages 497-506, January. [Downloadable!] (restricted)
  4. Mustafa H. Babiker & Thomas F. Rutherford, 2005. "The Economic Effects of Border Measures in Subglobal Climate Agreements," The Energy Journal, International Association for Energy Economics, vol. 26(4), pages 99-126.
  5. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future. [Downloadable!]
  6. Grubb, M. & Neuhoff, K., 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Cambridge Working Papers in Economics 0645, Faculty of Economics, University of Cambridge. [Downloadable!]
  7. Carolyn Fischer & Alan K. Fox, 2007. "Output-Based Allocation of Emissions Permits for Mitigating Tax and Trade Interactions," Land Economics, University of Wisconsin Press, vol. 83(4), pages 575-599. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stephen P. Holland, 2009. "Taxes and Trading versus Intensity Standards: Second-Best Environmental Policies with Incomplete Regulation (Leakage) or Market Power," NBER Working Papers 15262, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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