The Impact of Border Carbon Adjustments under Alternative Producer Responses

Abstract and PDF report are also available on the MIT Joint Program on the Science and Policy of Global Change website (http://globalchange.mit.edu/)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.This study received support from the MIT Joint Program on the Science and Policy of Global Change, which is funded by a consortium of government, industry and foundation sponsors

Europe's Twenties: A Study Using the WIATEC Model

In this paper, we use a computable general equilibrium model (WIATEC) to study the potential impact of implementing Europe's 20-20-20 climate policy. The results show that the economic costs of implementing the policy are only moderate and within the range of recent empirical evidence. Furthermore, they also indicate that there is a possibility that the existing allocations to the Europena sectors participating in the EU Emissions Trading Scheme (EU ETS) are on the low side, and therefore, there are still rooms for movement in the future

WIATEC: A World Integrated Assessment Model of Global Trade Environment and Climate Change

This paper describes the structure of the World Integrated Assessment model of global Trade, Environmental, and Climate change (WIATEC).The model consists of a multi-regional multi-sectoral core CGE model linked to a climate model. The core CGE is based on an existing global trade and environment model called GTAP-E (Truong, 1999; Burniaux and Truong, 2002). A suite of different and interchangeable 'modules' are then built around this 'core' to enable the model to be able to handle a range of different policy issues such as CO2 emissions, abatement, trading, non-CO2 (CH4 and N2O) emissions, land use land use change and forestry (LULUCF) activities, and changing technologies in the electricity generation sector. The approach which uses a core model structure with different additional modules built around this core structure allows the overall model to be flexible and can be adapted to a range of different policy issues. We illustrate the usefulness of this approach in a policy experiment which looks at the interaction between emissions trading scheme and the promotion of renewable energy targets in the European Union climate policy

Technological Change in Economic Models of Environmental Policy: A Survey

This paper provides an overview of the treatment of technological change in economic models of environmental policy. Numerous economic modeling studies have confirmed the sensitivity of mid- and long-run climate change mitigation cost and benefit projections to assumptions about technology costs. In general, technical progress is considered to be a noneconomic, exogenous variable in global climate change modeling. However, there is overwhelming evidence that technological change is not an exogenous variable but to an important degree endogenous, induced by needs and pressures. Hence, some environmenteconomy models treat technological change as endogenous, responding to socio-economic variables. Three main elements in models of technological innovation are: (i) corporate investment in research and development, (ii) spillovers from R&D, and (iii) technology learning, especially learning-by-doing. The incorporation of induced technological change in different types of environmental-economic models tends to reduce the costs of environmental policy, accelerates abatement and may lead to positive spillover and negative leakage

Multiple carbon accounting to support just and effective climate policies

Negotiating reductions in greenhouse gas emission involves the allocation of emissions and of emission reductions to specific agents, and notably, within the current UN framework, to associated countries. As production takes place in supply chains,increasingly extending over several countries, there are various options available in which emissions originating from one and the same activity may be attributed to different agents along the supply chain and thus to different countries. In this way, several distinct types of national carbon accounts can be constructed. We argue that these accounts will typically differ in the information they provide to individual countries on the effects their actions have on global emissions; and they may also, to varying degrees, prove useful in supporting the pursuit of an effective and just climate policy. None of the accounting systems, however, prove 'best' in achieving these aims under real-world circumstances; we thus suggest compiling reliable data to aid in the consistent calculation of multiple carbon accounts on a global level

A Proposal for the Attribution of Market Leakage to CDM Projects

Economic models suggest that in many cases, market leakage rates of greenhouse gas abatement reach the two-digit percentage range. Consequently, the Marrakesh Accords require Clean Development Mechanism (CDM) projects to account for leakage. Despite this, most project proponents neglect market leakage for their project, because the influence of an individual project on market prices seems to be negligible. Insufficient leakage accounting is facilitated by a lack of theories and applicable proposals regarding the quantification and attribution of leakage effects. The aim of this paper is to develop a proposal for the attribution of market leakage effects to CDM projects. To this purpose, we identify the transmission mechanisms for CDM project leakage, investigate the current practice of leakage accounting, and analyse alternative attribution methods for leakage effects that are transmitted through price changes. We find that project-specific approaches must fail to take account of such leakage effects. Consequently, we propose to estimate aggregate market leakage effects and attribute them proportionally to individual projects. Our proposal is based on commodity-specific leakage factors which can be applied by project developers to any emission reductions that are associated with a project's leakage-relevant demand or supply changes. The proposal is conservative, equitable, incentive compatible and applicable at manageable costs