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Measures to Enhance the Effectiveness of International Climate Agreements: The Case of Border Carbon Adjustments

Author

Listed:
  • Alaa Al Khourdajie

    (Centre for Environmental Policy, Imperial College London, UK)

  • Michael Finus

    (University of Graz, Austria)

Abstract

Actions on climate change which are not supported by all countries are not very effective. However, full participation in a global climate treaty with meaningful emission reductions is difficult to achieve. The non-excludability of the public good mitigation provides an incentive to abstain from global action. Moreover, carbon leakage renders it unattractive to join a treaty without full participation. We study whether and under which conditions border carbon adjustments (BCAs) can mitigate free-riding and reduce carbon leakage in a simple strategic trade model. We show that BCAs can lead to large stable climate agreements, including full participation, associated with large global welfare gains if treaties do not restrict membership (open membership), as this is typical for environmental agreements. We caution against restricting accession to treaties (exclusive membership), as this is typical for trade agreements, which may serve individual but not global interests.

Suggested Citation

  • Alaa Al Khourdajie & Michael Finus, 2020. "Measures to Enhance the Effectiveness of International Climate Agreements: The Case of Border Carbon Adjustments," Graz Economics Papers 2020-04, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2020-04
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    More about this item

    Keywords

    self-enforcing international climate agreements; international trade; border carbon adjustments;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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