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Border carbon adjustment and trade retaliation: What would be the cost for the European Union?

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Date
2016
Dewey
Economie internationale
Sujet
Emission trading scheme; Border carbon adjustment; Trade retaliation; D58; F18; Q56
JEL code
D.D5.D58; F.F1.F18; Q.Q5.Q56
Journal issue
Energy Economics
Volume
54
Publication date
2016
Article pages
349-362
Publisher
IPC Science and Technology Press
DOI
http://dx.doi.org/10.1016/j.eneco.2015.11.021
URI
https://basepub.dauphine.fr/handle/123456789/19655
Collections
  • LEDa : Publications
Metadata
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Author
Fouré, Jean
39083 Centre d'Etudes Prospectives et d'Informations Internationales [CEPII]
Guimbard, Houssein
39083 Centre d'Etudes Prospectives et d'Informations Internationales [CEPII]
Monjon, Stéphanie
39083 Centre d'Etudes Prospectives et d'Informations Internationales [CEPII]
559342 Laboratoire d'Economie de Dauphine [LEDa]
Type
Article accepté pour publication ou publié
Abstract (EN)
Unilateral climate policy, such as carbon pricing, represents an additional cost to the economy, especially to energy-intensive industrial sectors, as well as those exposed to international competition. A border carbon adjustment (BCA) is often presented as an attractive policy option for countries that wish to go ahead without waiting for a global climate agreement. We used the computable general equilibrium model MIRAGE to simulate the impact of the introduction of a BCA on imports of energy-intensive products in EU and EFTA countries and to evaluate the exports their main trade partners would lose. Given that a BCA is a trade measure, it might cause disputes at the World Trade Organization (WTO). If the BCA is considered illegal, the losses suffered by some partners may justify trade retaliations. At that point, it would be likely that prohibitive retaliatory tariffs target sensitive products in the EU, which are often related to the European agricultural sector. These trade measures would limit the drop in production in the energy-intensive and trade-exposed (EITE) sectors, but at the expense of the other sectors. Nevertheless, neither the BCA nor retaliation would have sizeable impacts on real income or GDP in the EU or on the retaliators, while leading to a small decrease in global emissions.

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