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Climate policy and border tax adjustments: Might industrial organization matter?

Author

Listed:
  • Ian Sheldon

    (Ohio State University)

  • Steve McCorriston

    (University of Exeter)

Abstract
In this paper, analysis is presented relating to the impact of border tax adjustments for climate policy on the problem of carbon leakage, and the related issue of competitiveness of energy-intensive industries. Compared to the current literature, these policies are set in the context of a vertically-related market characterized by successive oligopoly. Specifically, it is shown that an appropriate border tax adjustment depends on the incidence of domestic climate policy, the nature of competition in upstream and downstream sectors, as well as the basis for assessing the trade neutrality of any border tax adjustment. If trade neutrality is defined in terms of market volume, even though carbon leakage is reduced, domestic firm competitiveness cannot be maintained. This compares to defining trade neutrality in terms of market share, which results in domestic competitiveness being maintained and global carbon emissions being reduced. In either case, consumers incur deadweight losses.

Suggested Citation

  • Ian Sheldon & Steve McCorriston, 2012. "Climate policy and border tax adjustments: Might industrial organization matter?," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 9(2), pages 7-28, Julio-Dic.
    • Handle: RePEc:qua:journl:v:9:y:2012:i:2:p:7-28
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    Cited by:

    1. Sheldon, Ian & McCorriston, Steve, 2014. "Climate Policy and Border Measures: The Case of the US Aluminum Industry," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169544, Agricultural and Applied Economics Association.
    2. Melanie Hecht & Wolfgang Peters, 2019. "Border Adjustments Supplementing Nationally Determined Carbon Pricing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(1), pages 93-109, May.

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    More about this item

    Keywords

    climate policy; carbon leakage; border tax adjustments; industrial organization.;
    All these keywords.

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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