Addressing emission transfers: carbon tariffs vs. clean-development financing

Net emission transfers via international trade from developing to developed countries have increased fourfold in the last two decades. As consumption demand in developed countries is one of the main driving forces of emission transfers, several proposals have been made to assign the responsibility for those emissions to the beneficiary, i.e. to the consumer. Such definitions of emission responsibility extend the reach of domestic climate policies across national borders and make carbon-border adjustments (via carbon tariffs) and cleandevelopment financing in the emission-exporting developing countries a natural part of consumption-based accounts. This study analyzes the effects of clean-development financing and carbon tariffs on energy-intensive emission transfers. The clean-development policy describes the offsetting of emission transfers of Annex I countries by funding abatement measures in the emissionexporting developing countries. The policy scenarios are implemented into an energyeconomic model of the global economy. A general-equilibrium modeling approach combining output subsidies with domestic emissions taxes is used to represent the effects of clean-development investments in a sectorally consistent way. Results indicate that carbon tariffs are effective in reducing emission transfers to Annex I countries, but they are ineffective in reducing emissions in general. At the same time, they lead to reductions in global consumption and GDP levels and an unequal burdening of Annex I and non-Annex I countries. In contrast, the clean-development policy does not lead to reductions in emission transfers, but its investments in clean development significantly reduce emissions in non-Annex I countries. Those emission reductions come at little expense to Annex I countries with only minor economic impacts. Accounting for emission transfers and connecting them to emission-offset responsibilities could be a promising policy that would have environmental benefits without being a burden economically when contained to a limited number of sectors.