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Taxing Carbon along the Value Chain. A WIOD CGE Application

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  • Schenker, Oliver
  • Koesler, Simon
  • Löschel, Andreas

Abstract

In this paper we examine global carbon supply chains and assess the effects of tariffs on embodied carbon in a computable general equilibrium framework. Thereby, we take advantage of the comprehensive representation of international trade flows in the new World Input-Output (WIOD) dataset and specifically adjust the value of due embodied carbon tariffs accordingly. Hence we account for a potential overlap in regulation, if intermediate inputs are taxed multiple times along the supply chain of a product due to environmentally motivated trade policy. Carbon is added at numerous stages during the production of a good and even though domestic inputs dominate, especially in energy and trade intensive non-domestic carbon input is significant. Building on this insight, we show that compared to a simplistic Border Tax Adjustment (BTA) approach, taxing all embodied carbon in imports, accounting for the origin of carbon in the production process reduces economic distortions and decreases the social cost of a BTA regime accompanying unilateral climate policy.

Suggested Citation

  • Schenker, Oliver & Koesler, Simon & Löschel, Andreas, 2012. "Taxing Carbon along the Value Chain. A WIOD CGE Application," Conference papers 332248, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332248
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    References listed on IDEAS

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    1. Aichele, Rahel & Felbermayr, Gabriel, 2012. "Kyoto and the carbon footprint of nations," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 336-354.
    2. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    3. James R. MARKUSEN, 2021. "International Externalities And Optimal Tax Structures," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 16, pages 341-355, World Scientific Publishing Co. Pte. Ltd..
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