Border Carbon Adjustments and Leakage in the Presence of Public Pollution Abatement Activities

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 exportin...

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Published inEnvironmental & resource economics Vol. 87; no. 9; pp. 2231 - 2258
Main Authors Tsakiris, Nikos, Vlassis, Nikolaos
Format Journal Article
LanguageEnglish
Published Dordrecht Springer Netherlands 01.09.2024
Springer Nature B.V
Subjects
Adjustment
Borders
Carbon
Climate change
Economic development
Economic Policy
Economics
Economics and Finance
Emissions trading
Environmental Economics
Environmental Law/Policy/Ecojustice
Environmental Management
Environmental policy
Environmental tax
Exports
Industrialized nations
International organizations
International trade
Leakage
Pareto optimum
Paris Agreement
Pollution
Pollution abatement
Pollution control
Public sector
Tax reform
Tax revenues
Taxation
Trade restrictions
Transboundary pollution
Unilateralism
Welfare
Welfare reform
Environmental taxation
Transboundary pollution
Q56
H21
H23
Carbon leakage
Border carbon adjustment
F18
Public pollution abatement
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Summary: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.
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ISSN:0924-6460
1573-1502
DOI:10.1007/s10640-024-00882-x