Foundations and Trends® in Microeconomics > Vol 12 > Issue 1

Trade and Climate Change: Focus on Carbon Leakage, Border Carbon Adjustments and WTO Consistency

ZhongXiang Zhang, Tianjin University, China, ZhangZX@tju.edu.cn
 
Suggested Citation
ZhongXiang Zhang (2018), "Trade and Climate Change: Focus on Carbon Leakage, Border Carbon Adjustments and WTO Consistency", Foundations and TrendsĀ® in Microeconomics: Vol. 12: No. 1, pp 1-108. http://dx.doi.org/10.1561/0700000060

Published: 29 Aug 2018
© 2018 Z. Zhang
 
Subjects
 
Keywords
JEL Codes: F18F47O13O24O31O44Q37Q42Q43Q48Q54Q55Q56Q58R13R15
Emission tradingCompetitivenessCarbon leakageEmissions allowancesCarbon tariffsBorder carbon adjustmentsGrandfatheringOutput-based allocationWorld Trade Organization
 

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In this article:
1. Introduction
2. Channel of carbon leakage
3. The identification of sectors at a significant risk of carbon leakage
4. How large is the magnitude of leakage impacts?
5. Options to address competitiveness and leakage concerns
6. The WTO consistency, the effectiveness and methodological challenges of border carbon adjustment measures
7. Conclusions
Acknowledgments
References

Abstract

This monograph provides a comprehensive review of the literature on competitiveness and leakage concerns associated with differentiated climate abatement commitments among countries. The literature reviewed is not exhausted, but it is sufficient to provide a balanced view of both academics and policy circles. Section 2 discusses main channels of carbon leakage. Section 3 discusses how to identify the sectors at a risk of carbon leakage. Section 4 examines ex ante estimates of potential carbon leakage rates, and explains why they differ from ex post results of environmental tax reforms and greenhouse gas emissions trading schemes that have been implemented in the European Union. Section 5 discusses broad policy options to address competitiveness and leakage concerns, and compares which anti-leakage policy, border adjustments or output-based allocation, is more effective to limiting carbon leakages or mitigating production loss in the sectors affected. Given that border carbon adjustment measures were incorporated in the U.S. proposed congressional climate bills to level the carbon playing field and could have potential conflicts with World Trade Organization (WTO) provisions and practical difficulties associated with their implementation, Section 6 discuses in great detail the WTO consistency, the effectiveness and methodological challenges of border carbon adjustment measures. The monograph ends with some concluding remarks.

DOI:10.1561/0700000060
ISBN: 978-1-68083-482-6
120 pp. $85.00
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ISBN: 978-1-68083-483-3
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Table of contents:
1. Introduction
2. Channel of carbon leakage
3. The identification of sectors at a significant risk of carbon leakage
4. How large is the magnitude of leakage impacts?
5. Options to address competitiveness and leakage concerns
6. The WTO consistency, the effectiveness and methodological challenges of border carbon adjustment measures
7. Conclusions
Acknowledgments
References

Trade and Climate Change: Focus on Carbon Leakage, Border Carbon Adjustments and WTO Consistency

Trade and Climate Change: Focus on Carbon Leakage, Border Carbon Adjustments and WTO Consistency reviews the literature on competitiveness and leakage concerns associated with differentiated climate abatement commitments among countries. Section 2 discusses main channels of carbon leakage. Section 3 discusses how to identify the sectors at a risk of carbon leakage. Section 4 examines ex ante estimates of potential carbon leakage rates, and explains why ex ante estimates differ from ex post results of environmental tax reforms and greenhouse gas emissions trading schemes that have been implemented in the EU. Section 5 discusses broad policy options to address competitiveness and leakage concerns, and compares which anti-leakage policy, border adjustments or output-based allocation, is more effective to limiting carbon leakages or mitigating production loss in the sectors affected. Given that border carbon adjustment measures were incorporated in the U.S. proposed congressional climate bills to level the carbon playing field and could have potential conflicts with the World Trade Organization (WTO) provisions and practical difficulties associated with their implementation, Section 6 discuses in great detail the WTO consistency, the effectiveness and methodological challenges of border carbon adjustment measures. The monograph ends with some concluding remarks.

 
MIC-060