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China's carbon emissions trading policy represents a significant institutional innovation designed to advance the country's economic and social development towards sustainability and low-carbon growth. This study investigates the effects of China's carbon emissions trading policy by employing the difference-in-differences model and spatial Durbin model, using provincial panel data spanning from 2005 to 2020. We find that the carbon emissions trading policy can inhibit per capita carbon emissions in the pilot areas. This work is primarily driven by green technological innovation and the upgrade of industrial structure. Furthermore, the carbon emissions trading policy exhibits a positive spatial spillover effect, inhibits per capita carbon emissions in the areas adjacent to the pilot through demonstration effect and competition effect, and does not cause carbon leakage. These findings reveal the policy's effectiveness in emissions reduction, and may be useful reference for promoting sustainable economic and social development. This is of great practical significance for exploring how to optimize environmental governance measures, avoid carbon leakage, and achieve balance and fairness in responsibilities in achieving low-carbon sustainable development. Our study proposes policy recommendations for synergizing the national trading market in China. [ABSTRACT FROM AUTHOR]

Driven by the motivation to raise the ambition level of climate action and to foster the transformation of economies, current climate policy discourse revolves around ways to improve cooperation between industrialized countries and emerging economies. We identify three broad types of initiatives—multilateral-cross sectoral, multilateral, sector specific, and climate and development partnerships—and assess them for potentials to deliver on such objectives with a specific focus on industry transformation. This paper provides new reflections on the institutionalization of international climate cooperation. Specifically, we demonstrate the urgent need to understand what values, norms, and underlying principles drive a cooperation in order to draw conclusions on how to best institutionalize climate cooperation rules.in-use. We conclude that an overemphasis on a CO2 price and on carbon border adjustment mechanisms, such as in the context of the initial proposals for a cross-sectoral climate club envisaged by G7 countries, would have contributed to a further polarization of the international landscape. We find, however, that multilateral, sectoral alliances play an important role for international goal setting and the convergence on standards, metrics, and benchmarks. Based on our analysis, we recommend strengthening multilateral, sector-specific partnerships. These can be focused on sectoral topics as a connector between countries, allowing for a strategically-aligned, increasingly deep collaboration. However, for any initiative to succeed, processes of international institutionalization will be needed in order to agree on rules for implementation based on aligned interests and equity. Building such institutions may well serve as a steppingstone toward more durable cooperation structures between developed economies and emerging economies. In sum, no existing cooperation approach is perfect, but three actions may be taken to move the agenda forward: First, reform of the carbon border adjustment mechanism and removing it from the center of climate club discussions, second, coupling sectoral alliances with climate and development partnerships, and three, designing them in a way to address fears of political influence seeking and superimposition of global north agendas on the global south. [ABSTRACT FROM AUTHOR]

Associated with more ambitious targets for reducing emissions, the European Union (EU) plans to implement the Carbon Border Adjustment Mechanism (CBAM) fully in 2026, aiming to reduce carbon leakage and competitiveness concerns by imposing tariffs on carbon-intensive imports, which is expected to significantly impact its trade partners. Existing research has focused on CBAM's impact on macroeconomic indicators but has insufficiently addressed its effects on global and regional carbon leakage, especially in non-EU countries like China. This research offers a detailed analysis of industry-specific leakage rates and integrates both global and regional impacts by employing the dynamic recursive GTAP-E general equilibrium model to numerically simulate CBAM's inhibitory effect on carbon leakage under different carbon tariff scenarios, while also exploring the synergistic effects of anti-leakage policies in non-EU countries. Our simulations indicate the following: (1) CBAM effectively inhibits carbon leakage, with greater inhibition observed at higher tax rates and with the expansion of covered industries. (2) Establishing China's domestic carbon market pricing can further reduce regional carbon leakage rates. Implementing global export carbon tax policies will significantly diminish the risk of global carbon leakage. (3) The implementation of CBAM is projected to reduce China's total exports to the EU, though this loss will be partly offset by trade diversion effects. Carbon-intensive industries are more adversely affected in the short term, while all industries except fossil fuels face inevitable long-term negative impacts. [ABSTRACT FROM AUTHOR]

This paper sheds light on the unidentified effects of unilateral environmental and trade actions within an international trade framework with two large open economies, transboundary pollution, and Public Pollution Abatement (PPA) activities. When private and public abatement coexists in the exporting country, stricter environmental policy by the importing one magnifies the carbon leakage effect. Pareto efficiency dictates that Border Carbon Adjustment (BCA) should account not only for the difference in carbon taxes between the two countries, but also for the policy's unintended consequences on PPA. More importantly, we argue that a conditional reduction of BCA, subject to stricter environmental policy by the country that exports the polluting good, decreases global pollution and increases countries' welfare. Such reform strategy generates strong incentives for countries with laxer environmental policy to adopt a stricter one. [ABSTRACT FROM AUTHOR]

Copyright of China Population Resources & Environment is the property of Shandong Normal University and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The need to decarbonise has accelerated the quest to find solutions for sectors considered emissions-intensive and trade-exposed. Steel production is one such sector. Policymakers are responding with market-pull and technology-push mechanisms. Risks of carbon leakage have prompted consideration and implementation of border carbon mechanisms. Measures have drawn both positive and negative attention in internationally traded markets. This research quantifies the equivalence of differing measures to promote decarbonisation. It simulates the annual cost-saving equivalent and net present values of different mechanisms in a theoretical conversion to steelmaking with Electric Arc Furnace (EAF) technology from traditional steel production. It demonstrates that, under certain assumptions including removal of free allocation of emissions certificates, incentives per tonne of direct and indirect greenhouse gas emissions for carbon pricing and border carbon adjustments lie in the range EUR 18–76 whereas for cost-of-capital support measures it was EUR 24–41 per tCO2e. Whether firms act upon these incentives will depend on appetite for risk, availability of technology, feedstocks, choice they have in making changes and perceived sustainability of the assumptions made in investment analysis. There are implications for regulators, policy makers and managers as they prepare strategies to be competitive in an increasingly carbon-constrained environment. Highlights: Steel subsidisation effects can be expressed as per tCO2e emissions equivalent. Removing ETS free allocation creates strong steel decarbonisation incentive. To level playing field, border carbon adjustments should consider capital structure. Voluntary incentives can drive innovation by firms equally as do mandatory standards. Long-live investments require market assumptions that can be difficult to hedge. [ABSTRACT FROM AUTHOR]

The 'Fit for 55' policy package was presented in the European Commission's Green Deal framework, comprising a set of proposals to improve existing energy and climate legislation. Among its main proposals was a revision of the European Union's Emission Trading System to expand its sectoral coverage. Anticipating the possible loss of competitiveness with carbon pricing within the EU—which may lead to 'carbon leakage'—a carbon border adjustment mechanism (CBAM) was included in the package. This scheme takes the form of an export tax levied by the European Union on some goods manufactured in non-carbon-taxing countries. In this paper, we provide a first-order estimate of the potential impact of CBAM on Morocco's exports using an input–output approach. Our main findings suggest that the scheme would yield a carbon bill ranging from USD 20 to 34 million annually to Moroccan exporters in its initial phase. Morocco can mitigate such economic losses by instituting a national Emission Trading System, a tax reform, or speeding up the decarbonization of its economy. [ABSTRACT FROM AUTHOR]

The European Commission has proposed a Carbon Border Adjustment Mechanism (CBAM) to reduce carbon leakage and create a level playing field for its domestic products and imported goods. Nevertheless, the effectiveness of the proposal remains unclear, especially when it triggers threats of retaliation from trading partners of the European Union. We apply a Computable General Equilibrium model - Global Trade Analysis Project - to assess the economic and environmental impacts of different CBAM schemes. Here we show that the effectiveness of the CBAM to address carbon leakage risks is rather limited, and the CBAM raises concerns over global welfare costs, Correct to Gross Domestic Product (GDP) losses, and violation of equality principles. Trade retaliation leads to multiplied welfare losses, which would mostly be borne by poor countries. Our results question the carbon leakage reduction effect of a unilateral trade policy and suggest that climate change mitigation still needs to be performed within the framework of international cooperation. [ABSTRACT FROM AUTHOR]

Carbon leakage – the increase of greenhouse gas emissions in foreign jurisdictions following the introduction of domestic or regional climate mitigation measures – raises key questions in the climate change debate. This includes whether carbon leakage constitutes a threat to the environmental integrity of climate policies and, if so, how this could be mitigated. Through the use of four hypothetical models of international climate change regime, this article argues that international climate change law is a key factor in answering this two-part question. Firstly, the article demonstrates that the architecture of international climate change law affects whether carbon leakage can be considered as undermining the mitigation objective of climate policies. Secondly, it draws attention to the interaction – and potential tension – between carbon leakage prevention measures and international climate change law. [ABSTRACT FROM AUTHOR]

Carbon border adjustment mechanism aims to level the playing field and reduce carbon leakage through import taxes and/or export subsidies based on the carbon content for products from countries with different levels of carbon policy stringency. The introduction of an EU carbon border adjustment mechanism (CBAM) has triggered a lively debate on its potential impacts, especially among developing countries. In fact, introducing CBAM is not a new idea; researchers in fields of economics and law have investigated this policy over the last decade. Against this backdrop, this study conducts a literature review of the most recent economic studies of CBAM and provides an exhaustive synthesis of this literature. We employ the so-called 'Preferred Reporting Items for Systematic Reviews and Meta-Analysis' approach (PRISMA), which includes an exhaustive screening of studies. Specifically, we identified 97 relevant studies on CBAM from 2004 to 31 August 2021, and conducted descriptive and content analysis of these. Our content analysis highlights the potential impacts of CBAM in terms of its effectiveness across 3 policy objectives: protecting fair competition; reducing carbon leakage; and limiting global welfare costs. We synthesize findings on how policy design and characteristics of an economy lead to different levels and types of effectiveness of a CBAM, and we contrast alternative policy designs across various objectives. Armed with this systematic review of the literature, we spell out insights and challenges in formulating effective CBAM polices. This review thus offers evidenced-based guidance for the policy design of a CBAM and a foundation for further research. There is no one-size-fits-all approach to design and implement CBAM to tackle competitiveness and carbon leakage; policy design and characteristics of the economy matter. According to the effectiveness of CBAM across the 3 policy objectives, alternative policy designs should account for the coverage of trade, of sector(s), and also the means to determine carbon content of traded commodities, the use of revenues collected through CBAM, and the adjustment price. In formulating sound CBAM policies, competitiveness, carbon leakage and welfare evaluation are central economic concerns; however, consistency with the latest international climate policy architecture and fairness issues should also be addressed. [ABSTRACT FROM AUTHOR]

This paper critically addresses the need for a unified global climate policy, as opposed to region-specific emission trading systems, with a primary aim to contribute valuable insights to the ongoing discourse. Focused on the aluminum, cement, and iron and steel industries outlined in the EU's Carbon Border Adjustment Mechanism (CBAM) proposal, our comprehensive analysis using gravity model for trade, centers on testing the validity of the Pollution Haven Hypothesis and Porter Hypothesis. Drawing on data from 10 major EU economies and 19 OECD partners across continents, our study demonstrates that carbon leakage predominantly occurs through trade channels, wherein countries import carbon-intensive products from less regulated nations. Our findings substantiate the Pollution Haven Hypothesis, revealing unintended pollution havens resulting from stringent environmental regulations, leading to carbon leakage through trade or production relocation. In contrast, supporting the Porter Hypothesis, our research underscores how stringent environmental policies can drive innovation within polluting countries, obviating the need for relocation or product imports. By substantiating both hypotheses, our paper advocates for a globally uniform climate policy and emphasizes the potential drawbacks of asymmetrical approaches. The central aim is to contribute to the understanding of how such policies may inadvertently contribute to trade-induced leakage, undermining the positive impact of local systems on a global scale. In light of ambitious climate targets, our study underscores the urgency for synchronized global efforts, reinforcing the call for consistent policies to effectively address the challenges of climate change. [ABSTRACT FROM AUTHOR]

Reducing greenhouse gas emissions from agriculture is crucial to reach global and regional climate targets. However, the efficiency of unilateral climate policies aimed at taxing emissions might be hampered by carbon leakage. One way to eliminate leakage is to implement a global carbon tax. In this article, we study the effects of a carbon tax in agriculture on GHG emissions by simulating five policy scenarios using the CAPRI model; (i) an EU tax, (ii) an EU tax complemented with a border carbon adjustment mechanism (BCA), (iii) a global tax, (iv) a global tax scaled by GDP per capita, and (v) a low global tax at 1/10 of the tax level in the other scenarios. For the global scenarios, we also analyse the impact on food consumption and nutrient intake. We find that a global tax of EUR 120 per ton CO2-eq could reduce global agricultural emissions by 19%, but also jeopardizes food security in some parts of the world. A global tax at 1/10 of that rate (EUR 12) achieves a 3.2% reduction. In contrast, a unilateral EU tax of EUR 120 per ton CO2-eq, accompanied with a BCA, reduces global agricultural emissions by only 0.15%. A unilateral carbon tax in the EU causes significant emission leakage. This result depends strongly on differences in emission intensities between regions and on consumer preferences. A EUR 12 global carbon tax achieves a considerably larger global emission reduction than a EUR 120 unilateral EU carbon tax accompanied with a border carbon adjustment. A global carbon tax differentiated by GDP per capita is less effective than a uniform global carbon tax, as producers with higher emission intensities tend to get lower tax rates. Other ways of taking equity into account should be sought when designing climate policies in the agricultural sector. [ABSTRACT FROM AUTHOR]

Several EU countries have targets for the reduction of CO2e emissions that go beyond the target set by the EU. We study what would be the optimal carbon tax policy in such EU frontrunner countries, focusing on two questions: 1) How should national climate policy be coordinated with the European Emissions Trading System (ETS), and 2) How should an EU frontrunner country address the risk of carbon leakage? We show that these issues are closely linked and that the answers to the two questions depend on the following factors: i) The shadow cost assigned to carbon leakage, ii) The rates of carbon leakage in the ETS and non-ETS sectors, and iii) The price of ETS emission allowances relative to the domestic marginal abatement cost of attaining the desired reduction of domestic emissions. Our analysis shows that it is preferable for an EU frontrunner country to implement a national ETS sector carbon tax that results in a higher total carbon price in the national ETS sector compared to the national non-ETS sector. We illustrate how our theoretical model can be combined with a modified version of the GTAP-E general equilibrium model of the world economy to estimate the parameters of the optimal national carbon tax scheme in an EU frontrunner country, using Denmark as an example. We find that the ETS sector should pay a total carbon price that is between 33 and 78 percent above that of the rest of the economy depending on the aversion to carbon leakage. Key policy insights It is generally optimal for an EU frontrunner country – one with a domestic emission target beyond that set by the EU – to implement a national ETS sector tax. The total national carbon price should be higher in the ETS sector compared to the non-ETS sector. Data for Denmark indicate that the total national ETS sector carbon price should be at least 33 percent higher than that of the national non-ETS sector. [ABSTRACT FROM AUTHOR]

Copyright of Proceedings of the Faculty of Economics & Business in Zagreb / Zbornik Ekonomskog Fakulteta u Zagrebu is the property of Ekonomski Fakultet u Zagrebu and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

We investigate the relationship between research and development (R&D) and firm-level carbon emissions to determine whether firm type matters. Multinational corporations (MNCs) with high-level R&D expenditure have a greater ability than domestic companies to generate technologies that will contribute to controlling environmental pollution and climate change. However, we know less about whether MNCs contribute to reducing carbon emissions worldwide, because they also have the ability to overcome controls on pollution levels by shifting their production facilities from regions with more restrictions to those with fewer restrictions. The sample we use includes roughly 20,000 firm-year observations from 44 countries for the period 2003-2019. We find that MNCs decrease their carbon emissions by increasing their R&D spending more than domestic companies do. We further demonstrate that foreign direct investment (FDI) creates opportunities for MNCs to adjust their overall carbon emissions if they are located in developed countries. Key policy insights R&D investment in low-carbon technologies and practices decreases carbon emissions intensity and the impact on average is larger for MNCs than for domestic companies, showing that firm-type matters to emission reduction outcomes. MNCs manage their geographically diversified production so as to avoid reducing overall net global carbon emissions. MNCs may seek to operate in places that are weaker in enforcement of emissions reduction, which in turn raises their net global carbon emissions. MNCs located in developed countries are comparatively more important as corporate actors to drive carbon emission reductions due to changing location of operations. [ABSTRACT FROM AUTHOR]

While the EU is working toward the implementation of the world's first Carbon Border Adjustment (CBA) Mechanism, a gap remains between the ways in which carbon leakage and CBAs are discussed in policy spheres and economic evidence on these topics. The aim of this paper is to bridge this gap by presenting the EU's policy context, systematically reviewing the economic literature on carbon leakage and CBAs, and discussing potential future research avenues. Three channels of leakage are identified in our literature review: the competition, energy and innovation channels. The main finding of this paper is that while the competition channel is well understood and taken into account by policymakers, the energy and innovation channels are generally not considered. Policy recommendations are provided to better account for these two channels. [ABSTRACT FROM AUTHOR]

As an instrument to minimize carbon leakage, the effects and feasibility of Carbon Border Adjustments Mechanism (CBAM) will depend on multiple design options. While the EU has committed to introducing CBAM as part of its green climate deal, pursuing climate efforts to successfully limit global warming requires a collective implementation involving major emitters China and the US. This paper quantifies the distributional impacts of a joint CBAM implementation of in a climate alliance or a club of the EU, the US, and China. Differing from a myriad of studies that focus on unilateral CBAM, this analysis emphasizes collective implications on leakage, sectoral competitiveness, and welfare by projecting climate neutrality relative to current policies and climate targets. Our findings confirm that coalition reduces leakage, improves production on energy-intensive industries, and increases club's welfare relative to a non-CBAM and a unilateral implementation. These are in contrast with some unilateral analytical studies, especially for the US. It is further proof of the potential of CBAM as collective instruments to facilitate mitigation and trade competitiveness. [ABSTRACT FROM AUTHOR]

In October 2023, the EU Carbon Border Adjustment Mechanism (CBAM), a part of the reform of the European Emissions Trading System (EU ETS), will come into effect. Currently, energy-intensive industries do not need to purchase all of the necessary EU ETS allowances on the market to remain globally competitive, as the remaining allowances are freely allocated to them. The CBAM plans to gradually replace free allowances with a price on the carbon emissions embedded in imports. Following a transitional--primarily monitoring--phase, this price on embedded emissions will be gradually introduced from 2026 on the imports of certain products. While the CBAM can mitigate carbon leakage, production declines in greenhouse-gas intensive industries as a result of limiting free allowances, and rising carbon prices, it cannot compensate for them completely. In particular, the CBAM does not provide sufficient protection for exporters to non-EU countries. It is crucial that the CBAM does not lead to trade conflicts that would make multilateral cooperation more difficult. International cooperation is indispensable, as it is the only way to reduce global emissions. [ABSTRACT FROM AUTHOR]

Copyright of Deutsches Institut für Wirtschaftsforschung: DIW-Wochenbericht is the property of DIW Berlin and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

We analyse the international impact on carbon emissions from national climate legislation in 111 countries over 1996–2018. We estimate trade-related carbon leakage, or net carbon imports, as the difference between consumption and production emissions. Legislation has had a significant negative and roughly similar impact on both consumption and production emissions. The net impact on trade-related emissions is therefore not statistically significant, neither in the short term (laws passed in the last 3 years) nor the long term (laws older than 3 years). We find a significant negative long-term impact on domestic emissions from laws passed by trade partners. This latter specification corresponds to the traditional definition of carbon leakage. Overall, we conclude that there has been no detrimental effect of climate legislation on international emissions. [ABSTRACT FROM AUTHOR]

The article presents how the concept of the Carbon Border Adjustment Mechanism (CBAM) is reflected in the regulation recently adopted in the EU and what possible effects CBAM may cause. The authors begin with explaining the reasons for the introduction of CBAM. Next, they briefly describe what obligations arise from the mechanism for entities and EU Member States and compare this mechanism to the EU ETS. The challenges facing the mechanism and the possible effects of its implementation are then examined. In the final section, the authors assess the economic impact of the CBAM on the Polish economy, taking into account changes in the price levels, in the value of production, exports and imports, GDP and household consumption in the horizon of 2030. The projection was carried out using the Carbon Regulation Emission Assessment Model (CREAM), which is the static general equilibrium model developed in the Centre for Climate and Energy Analyses (CAKE) at the National Centre for Emission Management (KOBiZE). [ABSTRACT FROM AUTHOR]

Copyright of Verimlilik Dergisi is the property of Verimlilik Dergisi and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

There is now widespread agreement that the world community must actively combat climate change and advance green and low-carbon development. In order to deal with the issue of carbon leakage caused by the rising cost of industrial production as a result of policies to reduce greenhouse gas (GHG) emissions, the EU intends to implement the Carbon Border Adjustment Mechanism (CBAM) in its entirety starting in 2026, the pilot phase of which will begin in 2023. This shows the progressive emergence of a new international trade system driven by "climate change actions", "carbon peaking", and "carbon neutrality", which will have a broad and far-reaching impact on China's foreign trade industry. As more industries are being covered by the EU's CBAM, it will exert a negative impact on the social welfare and export of China, the largest trading partner of the EU, even though the existing mechanism has only limited economic impact on China's energy industry. This paper presents policy proposals to actively address the issues and effects of the EU's "carbon tariff" by methodically analyzing the EU CBAM's operation process and, via the development of models, determining the mechanism's influence on social welfare, carbon emissions, and China's exports. [ABSTRACT FROM AUTHOR]

We estimate the effects of a European Carbon Border Adjustment (CBA) mechanism on exports, real GDP, welfare and emissions using the multi-region, multi-sector structural gravity model of Larch and Wanner (2017). Incorporating the main industries covered in the proposal of the European Commission from mid-2021, as well as its other design features, and assuming prevailing CO2 prices, we find only small effects of the European CBA mechanism. EU exports are estimated to decline by 0.04%, while CO2 emissions in EU countries increase by 0.24%. These negligible results mask larger adjustments at the sectoral level. The structural changes will shift the EU economy towards more emission-intensive industries, which will make achieving its climate goals harder. On the positive side, the European CBA mechanism will reduce global emissions by 0.08%. Given the minute economic costs in terms of GDP and welfare losses, the CBA mechanism seems an appropriate policy tool, though its proposed design will not be able to make a significant contribution to mitigating global climate change. [ABSTRACT FROM AUTHOR]

Two transitions, green and digital, are changing the operations and strategies of industrial systems. At the same time, businesses are challenged to be globally competitive. Europe has a very ambitious agenda as it aims to be the first climate-neutral continent in 2050. The european emissions trading scheme (EU ETS) has proven to have facilitated the reduction of significant amounts of greenhouse gas emissions, but the risk of carbon leakage is present. This work seeks to explore these issues and their relationships. Through the use of a long short-term memory (LSTM) neural network, a model is built to determine the price of european union allowance (EUA) as a function of different financial energy futures. The results show that the model is very robust and the EUA tends to vary between 78 and 91 €/tCO 2 . In addition, a multi-criteria decision analysis (MCDA) is applied to identify the best policy alternatives to enable businesses subject to the EU ETS to be competitive in global markets. The analysis is carried out with the help of academic and industrial experts and it emerges that the criteria considered most relevant are two: (i) public expenditure and its expected benefits and (ii) the industrial ecosystem. The policy implications identify that bonuses should be provided to businesses for innovative solutions that protect both the energy and raw material components. The framework of the 3E (Energy Efficiency, Renewable Energy, and Circular Economy) are critical to businesses' long-term strategies, flanked by digital development. [ABSTRACT FROM AUTHOR]

Carbon taxes create global benefits unless offset by increased emissions elsewhere. An additional carbon tax in one country may cause leakage through imports and will also increase costs by creating a wedge between economic marginal costs in different markets, causing an offsetting deadweight loss. We estimate the global benefit, carbon leakage and deadweight cost of the British Carbon Price Support (CPS) on GB's cross-border electricity trade with France and The Netherlands. Over 2015-2020 the unilateral CPS created €72±20 m/yr deadweight loss, about 31% of the initial economic value created by the interconnector, or 2.5% of the global emissions benefit of the CPS at €2.9±0.1 bn/yr. About 16.3±3.5% of the CO2 emissions reduction is undone by France and The Netherlands, the monetary loss of which is about €584±127 m/yr. [ABSTRACT FROM AUTHOR]

Energy security and the reduction of greenhouse gases such as carbon dioxide are two major crises facing the world today. Using carbon dioxide to develop unconventional oil and gas resources is a positive way to reduce greenhouse gas emissions, which can significantly alleviate global energy security issues. This study systematically introduces the prerequisites for CO2 to extract crude oil and CO2 to be safely and effectively stored. Under high temperature and high pressure, the rock properties of deep reservoirs are completely different from those of atmospheric conditions in the two-phase porous media environment of crude oil and high salinity formation water. The research progress on the phase behavior, mutual solubility, CO2 storage potential and mechanism between supercritical CO2 and crude oil, formation water and reservoir are reviewed in detail. In addition, CO2 leakage will inevitably occur during long-term geological storage, the proper estimation and evaluation of the risk and establishment of corresponding sealing methods are the way forward for CO2 geological storage. By systematically elaborating the nature, advantages and disadvantages of fluid–fluid, fluid–solid interaction and geological integrity destruction mechanism, the directions in which several key problems should be solved were pointed out. [ABSTRACT FROM AUTHOR]

The European countries are committed to making Europe the first carbon‐neutral continent by 2050 under the carbon leakage debates. Carbon leakage occurs when carbon‐intensive production relocates to environmentally unregulated countries. The trade channel of carbon leakage refers that the carbon‐loaded products finally come back through imports and increase consumption‐based carbon emissions in the decarbonization‐committed countries. This study probes the effects of extra‐imports (imports from non‐European countries) share on per capita consumption‐based carbon dioxide emissions (CCEpc) in the panel of 31 European countries from 1995 to 2018. After identifying cross‐country dependence, unit root, heterogeneity, and cointegration, the study applies the common correlated effects mean group (CCEMG) and augmented mean group (AMG) estimators, followed by the Emirmahmutoglu‐Kose causality test. The results reveal a carbon leakage pattern that extra‐imports share has both associative (positive) and causal (one‐way) effects on CCEpc. Other results unveil a strong decarbonization contribution from enhancing renewable energy supply against the carbonization forces of growing extra‐exports (exports to non‐European countries) share, real gross domestic product, and comparative advantage in high‐tech manufactures, while population density's influence is statistically insignificant. Some policy implications including carbon‐adjusting border taxes on trade are drawn for regional and global mitigation undertakings. [ABSTRACT FROM AUTHOR]

We review the state of knowledge concerning international CO2 emission transfers associated particularly with trade in energy-intensive goods and concerns about carbon leakage arising from climate policies. The historical increase in aggregate emission transfers from developing to developed countries peaked around 2006 and declined since. Studies find no evidence that climate policies lead to carbon leakage, but this is partly due to shielding of key industrial sectors, which is incompatible with deep decarbonization. Alternative or complementary consumption-based approaches areneeded. Private sector initiatives to trace and address carbon emissions throughout supply chains have grown substantially but cannot compensate for inadequate policy. Three main price-based approaches to tackling carbon leakage are potentially compatible with international trade rules: border adjustments on imports, carbon consumption charges, and climate excise contributions combined with emissions trading. We also consider standards and public procurement options to tackle embodied emissions. Finally, we discuss proposals for carbon clubs involving cooperation among a limited set of countries. [ABSTRACT FROM AUTHOR]

With the proposal for a Regulation of the European Parliament and of the Council establishing a Carbon Border Adjustment Mechanism (CBAM) adopted on July 14, 2021 by the European Commission, it begins to reach the heart of the global debate on the opportunity to adopt mechanisms to combat the phenomenon of 'carbon leakage', that is the attempt to evade existing carbon pricing systems through the delocalization of the most polluting activities. In this way, the European Union demonstrates its serious intention to strengthen actions against climate change and to identify customs taxation as an instrument to guide the choices of its trading partners and, therefore, of the major world economies. The precautions adopted in the application of the CBAM and the long transitional period before its entry into force, however, prevent the full appreciation of its potential repercussions (also) in terms of the new own resource of the European budget. [ABSTRACT FROM AUTHOR]

In an integrated global economy, trade policy and climate policy are closely intertwined. This paper adopts an interdisciplinary approach to provide an overview of the key debates in economics, political science, and legal studies related to globalization and climate change. We identify a number of emerging issues that deserve increased attention in future research in this direction. These include international financial flows, migration, telecommunication, and digitization as well as changing lifestyles and consumption patterns across the globe. We also present potential research question regarding the diversification of import and export portfolios in the face of growing climate impacts and the decarbonization of industry, aviation, and shipping. Finally, we discuss how these recent developments could shape trade and climate policy formulation. We conclude that ambitious climate policies seem more likely to flourish in an open world trading system which provides sufficient flexibility for individual countries to adopt nationally appropriate climate policies. This article is categorized under:Climate Economics > Economics and Climate Change [ABSTRACT FROM AUTHOR]

In several countries where climate litigation has challenged the authorization of fossil-fuel extraction developments, resource companies have presented courts with a 'market substitution' argument (MSA) in support of authorization. In these contexts MSA is premised on the notion that if the fossil-fuel development in question is not approved, another one (or, broadly, increased production) elsewhere leading to similar amounts of greenhouse gas emissions will be approved to meet market demand. Some courts have accepted MSA. Others have rejected it. In several cases, and in the academic literature, the argument has been rejected on one or more of four grounds: logic or law; evidence; economics; and jurisprudence. These rejections are all questionable. I argue that MSA is not illogical or flawed in law, and therefore that it cannot be dismissed on a priori logical or legal grounds. I further argue that it is capable of being made out on evidence and does not suffer from economic or jurisprudential flaws. Courts and academic commentators should not be too quick to dismiss it. [ABSTRACT FROM AUTHOR]

Market power in electricity and emission-permit markets in the South-East Europe Regional Electricity Market, which comprises both EU members subject to the EU Emissions Trading System (ETS) and non-EU members exempt from it, affects social welfare and carbon leakage. We examine its impact under three market settings: perfect competition (PC) and two leader-follower versions, in which a leader can exert market power in either the electricity market (S-T) or both the electricity and permit markets (S). Under PC, carbon leakage is equal to 11%-39% of ETS emission reduction depending on the cap stringency. Generally, in S-T, the leader's capacity withholding results in ETS emissions below and non-ETS emissions above PC levels. However, carbon leakage is lower vis-à-vis PC as the ETS emission reduction offsets the non-ETS emission increase. Finally, in S, the leader's propensity to lower the permit price increases ETS emissions and exacerbates carbon leakage compared to S-T. [ABSTRACT FROM AUTHOR]

Tackling climate change has provided a key focus for the creation of what the editors of this special issue have termed 'environmental intangibles.' This paper focuses on the European Union Emissions Trading System (EUETS), a climate policy that revolves around the issuance and trading of environmental intangibles called emissions allowances. Set up in the mid-2000s, the cap and trade system has experienced many complications. We propose here to explore a particularly contentious issue: the allocation of free allowances. We will see that deciding on allocation rules leads to vivid debates about whether energy-intensive industries in Europe, such as the manufacturing of cement, can remain competitive in the global economy if climate policy is unilaterally enforced. These debates are focused on a phenomenon referred to as the risk of carbon leakage due to loss of competitiveness. Drawing on an empirical enquiry into the workings of policy-making, the paper examines the ways, in which this risk is framed and questioned through lobbying and evidential work. We suggest that the threat to competitiveness posed by the EUETS can neither be established, nor dismissed; a form of under-determination is maintained and carbon leakage as a never-quite-tangible possibility becomes a battleground for protecting European industry over the environment. [ABSTRACT FROM AUTHOR]

The loss of international competitiveness of domestic industries remains a key obstacle to the implementation of effective carbon prices in a world without harmonized climate policies. We analyze countries' noncooperative choices of emissions taxes under imperfect competition and mobile polluting firms. In our general equilibrium setup with trade, wage effects prevent all firms from locating in the same country. While under local or no pollution countries achieve the first-best, under transboundary pollution taxes are inefficiently low and lower than under autarky where only the "standard" free-riding incentive distorts emissions taxes. This effect is more pronounced when polluting firms are mobile. [ABSTRACT FROM AUTHOR]

The amount of CO2 embodied in trade has substantially increased over the last decades. We contribute to understanding the reasons for this evolution by studying the trends and some drivers of the carbon intensity of trade over the period 1995–2009 in 41 countries and 35 sectors. Our empirical analysis relies on the World Input-Output Database (WIOD) to compute embodied carbon emissions. Our main findings are the following. First, average emission intensity of traded goods is higher than average emission intensity of final demand. Second, relatively "dirty" countries tend to specialize in emission-intensive sectors. Third, the share of goods produced in emission-intensive countries is rising. Finally, we find that coal abundance (measured as fuel rent and controlling for reverse causality) leads both to a specialization in "dirty" sectors and to an increase in emissions per output when controlling for sector structure, which amounts to a fossil fuel endowment effect. These findings suggest trade liberalization may increase global emissions and therefore highlight the importance of considering trade when designing CO2 reduction strategies. [ABSTRACT FROM AUTHOR]

Although climate change and international trade are interdependent, policy-makers often address the two topics separately. This may inhibit progress at the intersection of climate change and trade and could present a serious constraint for global climate action. One key risk is carbon leakage through emission outsourcing, i.e. reductions in emissions in countries with rigorous climate policies being offset by increased emissions in countries with less stringent policies. We first analyze the Paris Agreement's nationally determined contributions (NDC) and investigate how carbon leakage is addressed. We find that the risk of carbon leakage is insufficiently accounted for in these documents. Then, we apply a novel quantitative approach (Jiborn et al., 2018; Baumert et al., 2019) to analyze trends in carbon outsourcing related to a previous international climate regime—the Kyoto Protocol—in order to assess whether reported emission reductions were offset by carbon outsourcing in the past. Our results for 2000–2014 show a more nuanced picture of carbon leakage during the Kyoto Protocol than previous studies have reported. Carbon outsourcing from developed to developing countries was dominated by the USA outsourcing to China, while the evidence for other developed countries was mixed. Against conventional wisdom, we find that, in general, countries that stayed committed to their Kyoto Protocol emission targets were either only minor carbon outsourcers or actually even insourcers—although the trend was slightly negative—indicating that binding emissions targets do not necessarily lead to carbon outsourcing. We argue that multiple carbon monitoring approaches are needed to reduce the risk of carbon leakage. [ABSTRACT FROM AUTHOR]

Regions with carbon emission regulations bear the risk of "carbon leakage" if local producers shift production capacity to an unregulated region. We investigate the problem for a producer subject to geographically asymmetric emission regulation with uncertain future emission price. The producer has two ex ante options to lower its compliance cost: investing in clean production technology in the regulated region and building production capacity in the unregulated region. The producer determines its production quantities ex post, after emission price uncertainty is resolved. We study two anti‐leakage policies, Border Tax (BT) and Output‐Based Allocation (OB), where the former adopts a "stick" approach that penalizes offshore production and the latter adopts a "carrot" approach that grants free emission allowances for production in the regulated region. First, we show that the emission price uncertainty can exert opposing effects in the absence of an anti‐leakage policy: When the expected emission price is low (high), a higher uncertainty aggravates (mitigates) carbon leakage. Second, through a comprehensive comparison, we highlight that while both BT and OB are able to reduce carbon leakage, BT has a stronger effect in both the regulated and unregulated regions in multiple dimensions, especially when the carbon leakage risk is high. Third, we find that a higher emission price uncertainty weakens the effect of both BT and OB. We therefore suggest that emission price uncertainty should be accounted for when formulating anti‐leakage policies. Finally, we extend our analysis to a competitive case and find that the superiority of BT relative to OB is enhanced. [ABSTRACT FROM AUTHOR]

We examine an open economy's strategy to reduce its carbon emissions by replacing its consumption of coal—very carbon intensive—with gas—less so. Unlike the standard theoretical approach to carbon leakage, we show that unilateral CO2 reduction policies generate a higher leakage rate in the presence of more than one carbon energy source and may turn counterproductive, ultimately increasing world emissions. We establish testable conditions as to whether a unilateral tax on domestic CO2 emissions increases the domestic exploitation of gas and whether such a strategy increases global emissions. We also characterize this strategy's implications for climate policy in the rest of the world. Finally, we present an illustrative application of our results to the United States. [ABSTRACT FROM AUTHOR]

This paper quantifies the carbon emissions embodied in the bilateral trade between India from the non-Annex-I country list under the Kyoto Protocol (1997) with two of its biggest trade partners from the Annex-II country list, the USA and the UK, by applying the input–output modelling during the years of 2011 to 2014, to evaluate and analyse the conjecture around the carbon leakage. After the calculation of the embodied carbon in these bilateral exports and imports, the study further inspects the roles of important drivers those are influencing the calculated emission imbalances in trade. This study addresses a high emission-intensive energy consumption pattern of India relative to both the USA and the UK which is confirming the possibility of carbon leakage from Indian commodity production sectors and inducing a huge contribution from these bilateral trades into the global emissions. Finally, this study provides evidence from a spatial decomposition analysis that the differences among the emission-intensity of output between India and its major developed country trade partners create the maximum impact on the implied emission imbalances in the bilateral trades. With the anticipation of increased India–USA and the India–UK bilateral trade, this study proposes suggestion to reduce India's emission intensity of output through fuel switching to the less emission-intensive energy options and relieve the pressure on the global environment. [ABSTRACT FROM AUTHOR]

Relocating energy-intensive industries to another country may help to meet national greenhouse gas reduction targets. However, this can lead to rising global emissions if production in the country that receives the shifted industries is associated with higher specific emissions ("carbon leakage"). The relocation of industries and thus the possible emergence of carbon leakage depends largely on cost advantages in the country of destination and the level of transport costs. In this study, we consider the example of relocations in the iron and steel industries of China and Germany in order to ascertain effects on CO2-emissions. We develop different scenarios for 2030 using a multilevel cross-impact-balance (CIB) approach and analyse these scenarios in a technology-based cost model. Since all scenarios show high specific cost for reducing global CO2-emissions by preferring crude steel produced in Germany to steel from China, we conclude that avoiding carbon leakage is not necessarily a cost-efficient measure for reducing global CO2-emissions. [ABSTRACT FROM AUTHOR]

Affordable energy is often argued to be a vital condition for manufacturing industries to be able to compete on global markets. Consequently, the idea of introducing a (unilateral) carbon tax is usually opposed on the grounds of potential losses of competitiveness and leakage of economic activity abroad. In this paper, we shed light on one potential channel of such effects-the impact of energy prices on firms' outward FDI. Using an instrumental variable strategy we estimate the longer-term effects on a sample of listed firms from 9 manufacturing sectors in 24 OECD countries over 1995-2008. The results suggest that relative energy prices-that is the difference between domestic energy prices and prices in the potential FDI destination-are significantly and asymmetrically related to firms' outward FDI asset share. Only firms that faced increases in the relative energy prices have increased their international asset position and this effect was relatively small. [ABSTRACT FROM AUTHOR]

This paper carefully surveys the econometric literature that tests for competitiveness effects and related carbon leakage caused by the EU Emissions Trading System (EU ETS). The results of this literature tell us that to date there is no evidence of the EU ETS having had widespread negative or positive effects on the competitiveness of regulated firms, nor is there evidence of significant carbon leakage. However, the paper also identifies three important caveats to this general conclusion. Firstly, the evidence we have still largely refers to the first two trading periods, namely Phases I (2005–2007) and II (2008–2012). Secondly, some heterogeneity of estimated effects is observed, but patterns, notably sectoral patterns, hardly emerge. Thirdly, very little explored is whether the EU ETS has had long‐term effects on the economy via investment leakage or firm dynamics. Further empirical studies investigating these long‐term effects are particularly desirable. [ABSTRACT FROM AUTHOR]

The paper looks at the ineffectiveness of climate protection undertaken by the United Nations Framework Convention on Climate Change (UNFCCC). Despite the emission reduction measures commenced by some countries, the global emission of carbon dioxide has increased more than 40% since the adoption of the UNFCCC. The most important reason of the catastrophe is the so-called Berlin Mandate (1995), which exempts most of the countries in the world -- including China that became the largest emitter in 2006 -- from taking any binding commitments to reduce emissions. The Paris Agreement (2015) has been the first attempt to overcome the failure. There are a number of economic reasons why the protection process has not been successful so far. 'Carbon leakage' caused by the fact that most countries do not have binding commitments implies that emission from economies that impose restrictions moves to where it is not constrained. This calls for a global agreement on emission reduction. Such a global agreement requires recognition of the fact that climate protection is a public good. It is surprising that those UNFCCC signatories, who are likely to be hit by the lack of protection most acutely, hesitate to adopt effective provisions. [ABSTRACT FROM AUTHOR]

This paper applies a DYNK (Dynamic New Keynesian) model to compare the traditional environmental tax reform for greenhouse gas (GHG) emissions with a taxation scheme that taxes GHG emissions embodied in consumption within the framework of a unilateral policy of the EU-27. The embodied emissions of different commodities are taxed independently of their origin. The GHG tax rates applied are identical and new revenues are in both cases recycled via lower social security contributions of employers. The results show the macroeconomic results, driven by the different impact of the taxation schemes on price competitiveness of EU-27 firms. These differences drive the leakage and show negative leakage in the case of taxing embodied GHG emissions. Both taxation schemes are also regressive for household incomes emphasizing the importance of the choice of revenue recycling. In terms of emission reduction, we find the taxation of emissions embodied in consumption less effective. [ABSTRACT FROM AUTHOR]

This paper empirically measures the impact of sectoral energy price differential between trading partners on Indian exports. Using dynamic gravity model, we estimate the response of Indian exports for 11 energy-intensive sectors to sectoral-level energy price asymmetry. We observe the absence of the contemporaneous effect of energy price differential on Indian exports, but the presence of persistence effects. We find that a 10% increase in relative energy prices negatively affects Indian sectoral exports by about 1% ranging from 0.9% for chemicals to 1.4% for non-ferrous metals, revealing a larger impact for energy-intensive sectors. These small effects imply that the concerns of carbon leakage are largely overplayed. [ABSTRACT FROM AUTHOR]

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