Border Carbon Adjustments: Rationale, Design and Impact

By Michael Keen, Ian W.H. Parry, James Roaf

September 27, 2021

Preview Citation

Format: Chicago

Michael Keen, Ian W.H. Parry, and James Roaf. Border Carbon Adjustments: Rationale, Design and Impact, (USA: International Monetary Fund, 2021) accessed September 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper assesses the rationale, design, and impacts of border carbon adjustments (BCAs). Large disparities in carbon pricing between countries raise concerns about competitiveness and emissions leakage. BCAs are potentially the most effective domestic instrument for addressing these challenges—but design details are critical. For example, limiting coverage of the BCA to energy-intensive, trade-exposed industries facilitates administration, and initially benchmarking BCAs on domestic emissions intensities would ease the transition for trading partners with emission-intensive production. It is also important to consider how to apply BCAs across countries with different approaches to emissions mitigation. BCAs alone do not solve the free-rider problem in carbon pricing, but might be a step to an effective international carbon price floor.

Subject: Competition, Environment, Export subsidies, Financial markets, Greenhouse gas emissions, International trade, Tariffs, Taxes

Keywords: Allowance allocation, Border carbon adjustment, Carbon pricing, Climate mitigation, Competition, Competitiveness, Design detail, Design issues, EITE industry, Emissions leakage, Emissions mitigation, Export subsidies, Global, Greenhouse gas emissions, Impacts of border carbon adjustments, Tariffs, World Trade Organization rules.

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/239
Stock No:

WPIEA2021239
ISBN:

9781557752567
ISSN:

1018-5941

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