Abstract
A modified version of the CGE GTAP-E model is used to assess economic and carbon emission effects related to alternative policy measures implemented to reduce carbon leakage. We explore a set of scenarios and compare solutions where Kyoto Annex I countries introduce carbon border taxes based on domestic carbon tax in order to solve the carbon leakage problem unilaterally and solutions where carbon border taxes are determined according to specific objectives. Results provide evidence of the scarce effectiveness of trade measures in reducing carbon leakage and enhancing economic competitiveness and the strong negative welfare effects they have not only on non-Annex countries but also on some Annex I countries.
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Notes
- 1.
In the rest of this chapter, the terms carbon tariff or carbon border tax will be used interchangeably.
- 2.
The emission trading is modelled assuming that all abating policies can be expressed in monetary values by computing a domestic carbon tax that is applied to fossil fuel consumption. The carbon tax equals the equilibrium permits price when emission trading is introduced. This approach, which is common practice in general equilibrium modelling, enables the relative incidence of the compliance costs among countries to be assessed.
- 3.
This problematic issue refers to the so-called hot air debate and also addresses the role of the other flexible mechanisms required by the protocol (World Bank 2010). Consequently, for FSU and Belarus, the 0Â % target scheduled in the protocol is applied to the emission levels in 2012 rather than the 1990 period.
- 4.
Border tax adjustments are two-way when they also apply to products exported to non-Annex countries and equal the difference in indirect taxes (e.g. the value added tax) between trading partners. However, this would provide incentives to keep ‘dirty’ plants operating for export purposes and would make meeting the abatement commitments even more difficult for the other firms (Fischer and Fox 2009).
- 5.
CBTs are established in specific terms (i.e. price per ton of emissions associated with the production of each good), and their ad valorem equivalents will be higher for goods with lower prices.
- 6.
In all simulated scenarios, the tariff surcharges are levied on top of the existing tariff structure by Annex I countries on all imports from the non-Annex countries.
- 7.
This scenario can be defined as our first best scenario in contrast with the others which can be referred to as ‘second best’ scenarios.
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Acknowledgements
The authors wish to thank Giancarlo Tosato and Maria Rosa Virdis for their comments and suggestions. This work has been supported by the research network Enea-Inea-Uniroma Tre on Integrating bottom-up and top-down energy models: the case of GTAP-E and Markal TIMES-Italy.
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Antimiani, A., Costantini, V., Martini, C., Salvatici, L., Tommasino, M.C. (2012). Carbon Leakage and Trade Adjustment Policies. In: Costantini, V., Mazzanti, M. (eds) The Dynamics of Environmental and Economic Systems. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-5089-0_2
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