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Climate Policy, Carbon Leakage and Competitiveness: How Might Border Tax Adjustments Help?

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  • Sheldon, Ian M.
  • McCorriston, Steve

Abstract

In this paper, analysis is presented relating to the impact of border tax adjustments for climate policy on the international competitiveness of energy-intensive industries, and the related problem of carbon leakage. While many of the economic and legal issues are not particularly new, climate policy does present some possible twists to the analysis of border tax adjustments when vertically-related markets can be characterized as a successive oligopoly. Specifically, an appropriate border tax adjustment will depend on the incidence of a domestic carbon tax, the nature of competition in upstream and downstream sectors, as well as the basis for assessing the trade neutrality of any border tax adjustment. If trade neutrality is defined in terms of market volume, even though carbon leakage is reduced, domestic firm competitiveness cannot be maintained. This compares to defining trade neutrality in terms of market share, which results in domestic competitiveness being maintained and global carbon emissions being reduced.

Suggested Citation

  • Sheldon, Ian M. & McCorriston, Steve, 2011. "Climate Policy, Carbon Leakage and Competitiveness: How Might Border Tax Adjustments Help?," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103207, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:103207
    DOI: 10.22004/ag.econ.103207
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    File URL: https://ageconsearch.umn.edu/record/103207/files/AAEAClimate.pdf
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    References listed on IDEAS

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    1. van Asselt, Harro & Brewer, Thomas, 2010. "Addressing competitiveness and leakage concerns in climate policy: An analysis of border adjustment measures in the US and the EU," Energy Policy, Elsevier, vol. 38(1), pages 42-51, January.
    2. Ottar Mæstad, 2001. "Efficient Climate Policy with Internationally Mobile Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 19(3), pages 267-284, July.
    3. Sheng-Peng Yang, 2001. "Measuring Market Power in the U.S. Aluminum Industry: A Residual Demand Approach," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(3), pages 365-380, November.
    4. Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi‐unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114, March.
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    Cited by:

    1. Antimiani, Alessandro & Costantini, Valeria & Martini, Chiara & Salvatici, Luca & Tommasino, Maria Cristina, 2011. "Cooperative and non-cooperative solutions to carbon leakage," Conference papers 332096, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Antimiani, Alessandro & Costantini, Valeria & Martini, Chiara & Salvatici, Luca & Tommasino, Maria Cristina, 2013. "Assessing alternative solutions to carbon leakage," Energy Economics, Elsevier, vol. 36(C), pages 299-311.

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    Keywords

    Environmental Economics and Policy; International Relations/Trade;

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