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The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade

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Listed:
  • Guo, B.
  • Newbery, D.

Abstract

Note - The change in title and this paper replaces CWPE1951. Carbon taxes create global benefits unless offset by increased emissions elsewhere. An additional carbon tax in one country may cause leakage through imports and will also increase costs by creating a wedge between economic marginal costs in different markets, causing an offsetting deadweight loss. We estimate the global benefit, carbon leakage and deadweight cost of the British Carbon Price Support (CPS) on GB’s cross-border electricity trade with France and The Netherlands. Over 2015-2020 the unilateral CPS created €72±20 m/yr deadweight loss, about 31% of the initial economic value created by the interconnector, or 2.5% of the global emissions benefit of the CPS at €2.9±0.1 bn/yr. About 16.3±3.5% of the CO2 emissions reduction is undone by France and The Netherlands, the monetary loss of which is about €584±127 m/yr.

Suggested Citation

  • Guo, B. & Newbery, D., 2020. "The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade," Cambridge Working Papers in Economics 2014, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2014
    Note: bg347,dmgn
    as

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    File URL: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2014.pdf
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    References listed on IDEAS

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    Cited by:

    1. Leroutier, Marion, 2022. "Carbon pricing and power sector decarbonization: Evidence from the UK," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    2. Guo, Bowei & Newbery, David, 2021. "The cost of uncoupling GB interconnectors," Energy Policy, Elsevier, vol. 158(C).
    3. Liu, Y. & Jiang, Z. & Guo, B., 2021. "Assessing China's Provincial Electricity Spot Market Pilot Operations: Lessons from the Guangdong Province," Cambridge Working Papers in Economics 2165, Faculty of Economics, University of Cambridge.
    4. Marion Leroutier, 2021. "Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK," Working Papers halshs-03265636, HAL.
    5. Marion Leroutier, 2021. "Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK," CIRED Working Papers halshs-03265636, HAL.

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    More about this item

    Keywords

    Carbon tax; Bilateral trading; Carbon leakage; Electricity market;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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