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Unilateral consumption-based carbon taxes and negative leakage

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  • Eichner, Thomas
  • Pethig, Rüdiger

Abstract

We investigate the performance of a consumption-based carbon tax – implemented by full border carbon adjustment – as an instrument of unilateral climate damage mitigation in a two-period two-country general equilibrium model with a finite stock of fossil fuel. The implementation of that tax in the first period reduces the first-period emissions in the taxing and non-taxing country (negative within period leakage) if income effects are sufficiently weak. Otherwise, it increases the first-period emissions in both countries (green paradox). That result contrasts with the case of a unilateral production-based carbon tax, in which the leakage rate is always positive and possibly exceeds 100%.

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  • Eichner, Thomas & Pethig, Rüdiger, 2015. "Unilateral consumption-based carbon taxes and negative leakage," Resource and Energy Economics, Elsevier, vol. 40(C), pages 127-142.
    • Handle: RePEc:eee:resene:v:40:y:2015:i:c:p:127-142
    DOI: 10.1016/j.reseneeco.2015.03.002
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    Cited by:

    1. Christoph Böhringer & Knut Einar Rosendahl & Halvor Storrøsten, 2021. "Smart hedging against carbon leakage [An overview of the GTAP 9 data base]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(107), pages 439-484.
    2. Böhringer, Christoph & Rosendahl, Knut Einar & Storrøsten, Halvor Briseid, 2017. "Robust policies to mitigate carbon leakage," Journal of Public Economics, Elsevier, vol. 149(C), pages 35-46.
    3. Francesca Sanna-Randaccio & Roberta Sestini & Ornella Tarola, 2017. "Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(2), pages 379-401, June.
    4. HIGASHIDA Keisaku & ISHIKAWA Jota & TARUI Nori, 2021. "Carrying Carbon? Negative and Positive Carbon Leakage with International Transport," Discussion papers 21102, Research Institute of Economy, Trade and Industry (RIETI).
    5. Zhang, Zengkai & Zhang, Zhongxiang, 2017. "Intermediate input linkage and carbon leakage," Environment and Development Economics, Cambridge University Press, vol. 22(6), pages 725-746, December.
    6. Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2015. "Mitigating carbon leakage: Combining output-based rebating with a consumption tax," ZenTra Working Papers in Transnational Studies 54 / 2015, ZenTra - Center for Transnational Studies.
    7. Noha Elboghdadly & Michael Finus, 2020. "Non-Cooperative Climate Policies among Asymmetric Countries: Production- versus Consumption-based Carbon Taxes," Graz Economics Papers 2020-16, University of Graz, Department of Economics.
    8. Cheng, Haitao, 2021. "Border carbon adjustments with endogenous assembly locations," Economic Modelling, Elsevier, vol. 105(C).
    9. Haitao CHENG & ISHIKAWA Jota, 2021. "Carbon Tax and Border Tax Adjustments with Technology and Location Choices," Discussion papers 21030, Research Institute of Economy, Trade and Industry (RIETI).
    10. John E. T. Bistline & James Merrick & Victor Niemeyer, 2020. "Estimating Power Sector Leakage Risks and Provincial Impacts of Canadian Carbon Pricing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(1), pages 91-118, May.

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    More about this item

    Keywords

    Consumption-based carbon tax; Production-based carbon tax; Leakage;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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