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Border carbon adjustment and potential trade retaliation: an evaluation with MIRAGE-e

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  • Fouré, Jean
  • Guimbard, Houssein
  • Monjon, Stéphanie

Abstract

Recently, carbon leakage risks have been seriously examined in the framework of the European Emission Trading Scheme (EU ETS). Since 2005, this system caps emissions of highly emissive European companies. But some of these companies are significantly exposed to international competition. Several Member States, in particular France, have proposed to impose a border carbon adjustment (BCA) to imports of the products covered by the EU ETS. However, as a trade measure, a BCA may be contested by a World Trade Organization member under its dispute settlement mechanism and may lead to trade retaliation from some trade partners. While the economic impacts of border carbon adjustment measures have been addressed in several papers, we are not aware of any study that assesses the implications of trade retaliation if the BCA is deemed illegal. The aim of this paper is to analyze the efficiency, in terms of carbon leakage limitation, of a BCA in complement to the EU ETS, but also to evaluate the cost of possible trade retaliation due to the implementation of the trade measure.

Suggested Citation

  • Fouré, Jean & Guimbard, Houssein & Monjon, Stéphanie, 2012. "Border carbon adjustment and potential trade retaliation: an evaluation with MIRAGE-e," Conference papers 332266, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332266
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    References listed on IDEAS

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