The Impact of Border Carbon Adjustments Under Alternative Producer Responses

Joint Program Report
The Impact of Border Carbon Adjustments Under Alternative Producer Responses
Winchester, N. (2011)
Joint Program Report Series, 12 pages

Report 192 [Download]

Abstract/Summary:

Border carbon adjustments (BCAs) have been proposed to address leakage and competitiveness concerns. In traditional assessments, firms regard BCAs as output taxes rather than implicit emissions taxes. Using a stylized energy-economic model, we analyze the impact of BCAs for alternative producer responses. When firms view BCAs as an implicit emissions tax, the outcome depends on whether or not firms can differentiate production across destination markets. If firms are able to produce a low-emissions variety for regions imposing BCAs, results are similar to when firms regard BCAs as an output tax. If firms produce a single variety for all markets, BCAs result in larger leakage reductions than in standard approaches. We also find that BCAs are less effective at addressing competitive concerns in scenarios that result in larger leakage reductions.

Citation:

Winchester, N. (2011): The Impact of Border Carbon Adjustments Under Alternative Producer Responses. Joint Program Report Series Report 192, 12 pages (http://globalchange.mit.edu/publication/14552)
  • Joint Program Report
The Impact of Border Carbon Adjustments Under Alternative Producer Responses

Winchester, N.

Report 

192
12 pages
2011

Abstract/Summary: 

Border carbon adjustments (BCAs) have been proposed to address leakage and competitiveness concerns. In traditional assessments, firms regard BCAs as output taxes rather than implicit emissions taxes. Using a stylized energy-economic model, we analyze the impact of BCAs for alternative producer responses. When firms view BCAs as an implicit emissions tax, the outcome depends on whether or not firms can differentiate production across destination markets. If firms are able to produce a low-emissions variety for regions imposing BCAs, results are similar to when firms regard BCAs as an output tax. If firms produce a single variety for all markets, BCAs result in larger leakage reductions than in standard approaches. We also find that BCAs are less effective at addressing competitive concerns in scenarios that result in larger leakage reductions.