Working Paper: NBER ID: w17376
Authors: Christoph Bhringer; Jared C. Carbone; Thomas F. Rutherford
Abstract: In a world where the prospects of a global agreement to control greenhouse gas emissions are bleak, the idea of using trade policy as an implicit regulation of foreign emission sources has gained many supporters in countries contemplating unilateral climate policies. Embodied carbon tariffs tax the direct and indirect carbon emissions embodied in imported goods. The appeal seems obvious: as OECD countries are, on average, large net importers of embodied emissions from non-OECD countries, carbon tariffs could substantially extend the reach of OECD climate policies. We investigate this claim by simulating the effects of embodied carbon tariffs with a computable general equilibrium model of global trade and energy use. We find that embodied carbon tariffs do effectively reduce carbon leakage. However, the scope for improvements in the global cost-effectiveness of unilateral climate policy is limited. The main welfare effect of the tariffs is to shift the burden of OECD climate policy to the developing world.
Keywords: carbon tariffs; carbon leakage; unilateral climate policies
JEL Codes: F18; H23; Q54; Q56
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| embodied carbon tariffs (F18) | reduce carbon leakage (H23) |
| embodied carbon tariffs (F18) | welfare losses in non-OECD regions (F69) |
| reduce carbon leakage (H23) | welfare effects (D69) |
| embodied carbon tariffs (F18) | shift burden of OECD climate policy onto developing countries (F64) |
| embodied carbon tariffs (F18) | benefit OECD regions at the expense of non-OECD countries (F69) |