Is there a case for carbon-based border tax adjustment? An applied general equilibrium analysis

Growing concern that unilateral greenhouse gas emission reductions could foster carbon leakage and undermine international competitiveness of domestic industry have led a number of EU and US politicians to advocate the use of border-tax adjustments (BTAs) to "level the playing field". Such proposals have so far often been dismissed on administrative feasibility and protectionist grounds, but surprisingly little economic analysis has been performed to assess their actual impacts on leakage, competitiveness and welfare. This paper uses the global recursive-dynamic general equilibrium model ENV-Linkages to fill this gap. Two alternative scenarios are considered under which either the EU alone or Annex- I countries as a whole cut their emissions by 20% by 2020 (and 50% by 2050) relative to 2005 levels. A broad range of checks are performed to assess the robustness of the main results to key model parameters, country coverage, targets and design features of BTAs. Two main conclusions stand out. First, BTAs are an effective way of reducing carbon leakage, if there is only a small coalition of acting countries, such as, just the EU, because leakage (while typically small) mainly occurs through the competitveness rather than through the fossil fuel price channel in this case. However, the need for, and the effectiveness of BTAs declines rapidly with the size of the coalition, as BTAs address a smaller share of an even smaller rate of leakage. Second, BTAs entail small welfare losses as a world level. Perhaps more strikingly, they do not necessarily curb the output losses incurred by the domestic energy intensive-industries (EIIs) they are intended to protect in the first place. This is in part because EIIs in the EU and the US make important use of carbon-intensive intermediate inputs produced by these same EIIs in other geographical areas. Another, deeper explanation is that EIIs are ultimately more adversely affected by carbon pricing itself than by any international competitiveness losses

Is there a case for carbon-based border tax adjustment? An applied general equilibrium analysis

Growing concern that unilateral greenhouse gas emission reductions could foster carbon leakage and undermine international competitiveness of domestic industry have led a number of EU and US politicians to advocate the use of border-tax adjustments (BTAs) to "level the playing field". Such proposals have so far often been dismissed on administrative feasibility and protectionist grounds, but surprisingly little economic analysis has been performed to assess their actual impacts on leakage, competitiveness and welfare. This paper uses the global recursive-dynamic general equilibrium model ENV-Linkages to fill this gap. Two alternative scenarios are considered under which either the EU alone or Annex- I countries as a whole cut their emissions by 20% by 2020 (and 50% by 2050) relative to 2005 levels. A broad range of checks are performed to assess the robustness of the main results to key model parameters, country coverage, targets and design features of BTAs. Two main conclusions stand out. First, BTAs are an effective way of reducing carbon leakage, if there is only a small coalition of acting countries, such as, just the EU, because leakage (while typically small) mainly occurs through the competitveness rather than through the fossil fuel price channel in this case. However, the need for, and the effectiveness of BTAs declines rapidly with the size of the coalition, as BTAs address a smaller share of an even smaller rate of leakage. Second, BTAs entail small welfare losses as a world level. Perhaps more strikingly, they do not necessarily curb the output losses incurred by the domestic energy intensive-industries (EIIs) they are intended to protect in the first place. This is in part because EIIs in the EU and the US make important use of carbon-intensive intermediate inputs produced by these same EIIs in other geographical areas. Another, deeper explanation is that EIIs are ultimately more adversely affected by carbon pricing itself than by any international competitiveness losses

Tariff protection elimination and Common Agricultural Policy reform: implications of changes in methods of import demand modelling

The study proposes a way for accommodating the traditional Armington assumption to capture the possibility for a country to import imperfect substitutes as well as perfect substitutes for domestically produced goods. When this possibility is incorporated into a modelling framework, then a Common Agricultural Policy elimination scenario, including the setting to zero of import tariffs, would have starker implications than many studies suggest. To illustrate this point, a Computable General Equilibrium (CGE) model of the French economy is used, highlighting agricultural and food sectors. The study analyses the consequences for the French economy of a complete liberalization scenario in the European sector of cereals.

Climate Change and Adaptation: The Case of Nigerian Agriculture

The present research offers an economic assessment of climate change impacts on the four major crop families characterizing Nigerian agriculture. The evaluation is performed by shocking land productivity in a computable general equilibrium model tailored to replicate Nigerian economic development up to 2050. The detail of land uses in the model has been increased by differentiating land types per agro-ecological zones. Uncertainty about future climate is captured, using, as inputs, yield changes computed by a crop model under ten general circulation models runs. Climate change turns out to be negative for Nigeria in the medium term, with production losses and increase in crop prices, higher food dependency on foreign imports, and GDP losses in all the simulations after 2025. In a second part of the paper, a cost effectiveness analysis of adaptation in Nigerian agriculture is conducted. The adaptation practices considered are a mix of cheaper "soft measures" and more costly "hard" irrigation expansion. The main result is that the cost effectiveness of the whole package depends crucially on the possibility of implementing adaptation by exploiting low-cost opportunities which show a benefit-cost ratio larger than one in all the climate regimes