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In December 2019, the EU announced the European Green Deal (EGD) to create a climate-neutral continent by 2050. Accordingly, the EU Emission Trading System (ETS) will be revised to maintain economic growth against possible losses in competitiveness, leading to "carbon leakage." Carbon border adjustment (CBA) is one of the mechanisms proposed to tackle the carbon leakage problem. In this paper, we provide a first-order estimate of the potential impacts of a possible CBA across production sectors and build a dynamic, multi-sectoral applied general equilibrium (AGE) model to study the overall macroeconomic impact of the EGD on the Turkish economy. Then, we extend our analysis to document the potential benefits of a more active climate policy. The model is in the Walrasian tradition wherein aggregate supply and demand actions are simulated with the interplay of relative prices to bring equilibrium in the markets for goods, for labor, and for foreign exchange. Constructed around 24 production sectors, the model accommodates flexible, multi-level functional forms to link production activities with gaseous emissions, a government entity to maintain taxation, and public expenditures, as well as administration of environmental policy instruments, all within an open-economy macroeconomic environment. Our results suggest that the potential adverse impact of the CBA on the Turkish economy would range between 2.7 and 3.6% loss of the GDP by 2030 over the business-as-(un)usual base path. We also document that under an alternative scenario through which Turkey is modeled as an active agent in the international climate policy arena embedding decarbonization into her official macroeconomic policy agenda, she can achieve a superior pathway for national income and a reduced carbon burden.

This paper studies the effect of international trade in food and timber on land use and potential carbon leakage in the context of actions to reduce emissions from deforestation and forest degradation (REDD+). First a simple analytical model of international leakage is presented that focuses on international competition between firms that produce food and timber. A formula for the leakage rate in the model is derived. The results of the analytical model are then tested with a large Computable General Equilibrium (CGE) model and it is verified that the qualitative results from the analytical model hold. Finally, a scenario of leakage rate trajectories is presented for a number of key tropical forest regions for the next two decades and a sensitivity analysis is performed on key parameters. Computed leakage rates range between 0.5 % for Brazil and 11.3 % for Malaysia and are fairly stable over the projection period. Leakage rates increase with a higher supply elasticity of land and a higher trade elasticity, they decrease with a higher elasticity of input substitution in production and appear to be independent of the rates of forest conservation and absolute prices of food and timber. © 2013 Springer Science+Business Media Dordrecht.

This chapter examines substantive and institutional linkages between the United Nations Framework Convention on Climate Change and the World Trade Organization. It focuses on identifying potentially sensitive areas in their relationship, including sustainability requirements targeting processes and production methods, as well as measures targeting carbon leakage and competitiveness ­concerns. It also discusses institutional and doctrinal challenges related to fragmentation of international law and highlights problems that could arise if a climate change related dispute was considered by the WTO dispute settlement system. The chapter concludes that the trade and climate regimes are increasingly relevant for each other and that they are not necessarily rivals – both could benefit from identifying and promoting unexploited synergies between the two regimes. However, closer cooperation and institutional coordination may be needed in the future in order to avoid mutually unhelpful institutional and legal clashes.

A reduction of the greenhouse gases emissions is one of the most important policies to tackle the long-term changes to the climate system. The emission trading schemes are flexible market mechanisms, which, if implemented wisely, can contribute to achieving sustainable green growth. The chapter will, firstly, review the relevant literature indicating the theoretical underpinnings and the crucial elements of an effective emission trading system. Secondly, it will analyse the legal framework of the European Union Emission Trading System and assess its achievements and challenges. Thereafter it will trace the legislative and institutional development of the Korean counterpart which is in the development stage. In its conclusion the chapter will suggest policy alterations which Korean government could implement to increase the efficiency of its scheme. It will argue that the Korean government should centralise the governance of its scheme to increase market liquidity and reduce a threat of favouritism. Moreover, Korea should contribute to developing effective mechanisms to combat carbon leakage and establish links with other similar schemes at the global scene.

A modified version of the CGE GTAP-E model is used to assess economic and carbon emission effects related to alternative policy measures implemented to reduce carbon leakage. We explore a set of scenarios and compare solutions where Kyoto Annex I countries introduce carbon border taxes based on domestic carbon tax in order to solve the carbon leakage problem unilaterally and solutions where carbon border taxes are determined according to specific objectives. Results provide evidence of the scarce effectiveness of trade measures in reducing carbon leakage and enhancing economic competitiveness and the strong negative welfare effects they have not only on non-Annex countries but also on some Annex I countries.

This chapter will look at the lessons learned from past and present EU decision making in the area of cleaner conventional and renewable fuels as well as the problems confronting policy makers in trying to move toward low carbon fuels. Today we are tasked with finding low carbon substitutes for fossil fuels yet most existing replacements are not issue free nor do they necessarily fit total low carbon requirements. Many would also say that the focus of our low carbon search should not be on existing fuel products and traditional transport modes but rather on new transport solutions and demand management options. Without a doubt the feat ahead is by far more complex than any challenge to the fuels industry or policy makers previously. We are now confronted with the need to take an entirely new approach to liquid fuels and their role in society within a short time horizon. Hence we have to completely re-think the role of liquid fossil fuels in meeting societal demands for transport energy. As in all system changes this must allow for transitional periods and adaptation steps while innovation and scale up is streamlined. It must also go hand and hand with simultaneous efforts to manage demand and implement mandatory efficiency requirements across Europe as no technology or single product will solve the fuel de-carbonization challenge.

We look at a simple model of international trade in primary goods (energy) and final goods. Tighter environmental policies in one country induce increased emissions in the rest of the world since they reduce the price of energy and raise the prices of energy-intensive final goods. The model is calibrated and it is seen that the effect via the final-goods market is relatively unimportant compared to the effect via the energy market. Optimal environmental policies require the introduction of trade interventions such as tariffs, import and export subsidies. Finally, non-competitive markets for final goods are addressed and it is shown that most of the results are not substantially altered.

Carbon taxation, in the form of taxes on fossil fuels in relation to their carbon content is an obvious instrument for introducing the long-term costs of climate change into the price system. At first sight it has all the hallmarks of good taxation: it tackles an accepted economic problem, helping to bring the private costs of emitting CO2 into line with social costs of global warming; its revenues can be expected to grow with income because energy demand tends to rise with income, and it is not easy to substitute away from fossil fuels in energy supply; it should be simple and cheap to administer through use of existing tax structures for excise duties; it might help to stimulate energy-saving and innovation and hence economic growth; and its side effects on equity are likely to be small enough for affected social groups to be compensated easily. The carbon tax could become one of the main pillars of fiscal systems in the 21 century, if necessary replacing income tax, VAT or import duties (or all three forms of tax) and improving social welfare.

The initial qualified commitment of Annex 1 countries under the Framework Convention on Climate Change to stabilize emissions at 1990 levels showed little regard for economic considerations. Unilateral stabilization could impose markedly different costs on different countries and is not a cost minimizing approach to abatement. However, as negotiations have progressed and the problem has been increasingly studied, economic considerations have become more prominent. A number of countries now support differentiated targets to take account of the special economic circumstances of different economies and an emission trading scheme has been proposed in policy negotiations.

In this paper we shall consider the likely impact of a carbon tax of the type proposed by the EC (1990) on energy markets. There are a number of aspects involved in assessing such an impact. At the simplest level we can begin by asking what impact a carbon tax would have on the consumer and producer prices for fossil fuels, and more generally for all sources of energy. Even to answer this apparently simple question is non-trivial. As a first cut at the problem we could begin by assuming that there is a single world government that is imposing a global carbon tax. This will act to drive up the consumer prices of fossil fuels and drive down the producer prices of fossil fuels and the first question is what is the likely size of such effects; in particular, to what extent does our putative world government need to take account of the reduction in producer prices when calculating the carbon tax required to achieve a particular level of CO2 emissions reduction. To answer such questions we are essentially investigating the elasticities of supply and demand for fossil fuels, taking account of cross elasticities of demand.

In the current debate about the introduction of a carbon tax in Europe, attention is devoted to the comparison between costs and benefits of the carbon tax. In particular, numerous articles analyse the effects of the European carbon tax on GDP growth, prices, and income distribution. This paper takes a different point of view. It focuses on the effectiveness of the carbon tax in reducing carbon dioxide emissions. There is no evidence that a European carbon tax can succeed in significantly curbing CO2 emissions. By contrast, there is evidence that other policy instruments can best attain the objective of protecting the international environment from global warming. This paper explores the conditions under which a carbon tax can effectively be used to reduce CO2 emissions, and proposes an environmental policy mix which is likely to add further effectiveness to emission taxation.

The likelihood of significant global warming by the middle of the next century is mainly linked to increasing world atmospheric concentrations of greenhouse gases (GHGs), of which carbon dioxide (CO2) is quantitatively the most significant. Since GHG emissions increase world concentrations independently of the country of origin, climate change is a global phenomenon. The Rio summit set the stage for a global agreement to curb GHG emissions, but it is likely that any concrete steps towards emission abatement in the near future will take the form of unilateral actions, in which single countries or groups of countries will commit themselves to emission abatement policies. These limited agreements may provide incentives to other countries to join the agreed policies through the “example or credibility effect” that unilateral actions could generate. The EC Commission proposal to impose a mixed carbon-cum-energy tax in order to stabilise emissions at their 1990 levels by the year 2000 is the most prominent example to date of such unilateral action.