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In the existence of trade interaction, a sub-global climate change policy can generate externality, which can cause competitiveness issues for the producers in compliant regimes. However among compliant regions, a small economy also receives a significant spillins effect when a large economy takes some regulatory actions that affect, particularly, the world prices of traded commodities. This externality can have notable impacts on the efficiency and pollution abatement opportunities of the small compliant regime with a trivial converse effect. In some cases, these impacts on the efficiency and emissions abatement can be in opposite directions. We capture these findings by incorporating two protection polices (i.e., border tax adjustment and free emissions allocations to emission-intensive and trade exposed industries) in a multi-region analytical and numerical general equilibrium modeling framework. These results convey that the large economies hold leading strategic positions towards a cooperative global climate change movement because of their policies' influences on the small economies.

Most studies have assessed the distributional impact of carbon taxes through their effects on commodity prices alone, while ignoring their impact on individual welfare brought about by changes in factor prices. Yet, the remunerations of capital and labor are not affected by these taxes similarly, and their shares in earned incomes are not uniform across households. This paper provides a comprehensive analysis of the incidence of carbon taxes on inequality by considering simultaneously the commodity and the income channels. We propose a decomposition of the change in individual welfare metrics. Then, we develop a general equilibrium model to assess the impact of carbon taxes on factor and commodity prices, and subsequently their distributional impact on households, using the Lorenz and concentration curves and the Gini index. Our results suggest that changes in factor prices and changes in commodity prices (especially those of energy commodities) have opposing effects on inequality. Carbon taxes tend to reduce inequality through the changes in factor prices and tend to increase inequality through the changes in commodity prices. Hence, we find a non-monotonic (U-shaped) relationship between carbon taxes and inequality. Our results suggest that the traditional approach of assessing the impact of carbon taxes on inequality through changes in commodity prices alone may be misleading. The findings cast light on the desirability of using both channels in the assessment of carbon taxes on inequality.

Using a multi-region, multi-sector computable general equilibrium (CGE) model, this paper compares the efficiency, distributional and emission leakage effects of border tax adjustments (BTAs) as part of unilateral climate policies that are based on carbon dioxide (CO2)-only versus those based on all greenhouse gases (GHGs). Simulation results suggest that the broad-based GHG policies in general have lower efficiency costs and result in less re-distributive effects. BTAs bring modest efficiency gains with adverse distributional consequences. The distributional impacts are smaller under broad-based GHG policies compared to that based on CO2 only. However, these are due to a wider variety of abatement options under multi-gas policies rather than the BTAs per se. The main difference between the two policies is distributional effects. First, CO2-only based policies have worse impacts on fossil fuel exporters such as Russia and relatively better outcomes for oil importers such as India and China, compared to that of multi-gas policies particularly when it involves large global emission reduction. Second, sectoral coverage under BTAs also influences the differential outcomes. For example, Brazil is worse impacted under GHG-based policies if agriculture is brought under BTAs as two-third of its emissions are non-CO2 based and agriculture is the primary source of these emissions.