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We exploit a fuel tax increase in Portugal to identify its effect on cross-border fuel sales and associated carbon leakage in the Spanish border regions. Using a difference-in-difference strategy, we find that while gasoline sales remained unaffected, diesel sales in Spanish border regions increased by 6–9%. Synthetic control methods confirm these estimates and attribute this differential effect by fuel type to routes frequented by heavy-duty vehicles, with large diesel tanks. We estimate a carbon leakage equivalent to 14–20% of Portugal's annual mitigation commitment for road transport emissions. Our findings imply that heavy goods vehicles' strategic behavior undermines the potential mitigation effects and revenue gains of transport climate policy, underscoring the need for coordinated policies in similar federal or quasi-federal contexts. [ABSTRACT FROM AUTHOR]

Carbon emissions have negative effects on the climate regardless of the location they are generated, and several strategies were introduced to meet the Sustainable Development Goals, precisely, Goal 13 "Take urgent action to combat climate change and its impacts". Recently, to tackle the so-called carbon leakage, the European Union (EU) introduced the Carbon Border Adjustment Mechanism (CBAM), which is a crucial instrument to establish a fair price for the carbon emissions during the production of certain carbon-intensive goods, including fertilizers. The objective of this study is to assess the efficacy of the CBAM in addressing carbon leakage within the EU by evaluating the virtual carbon emission flows to the EU in the timespan 2019–2023, focusing on the top ten primary exporters of fertilizers. The assessment is based on the comparison of the world weighted average (WWA) emission factor and the country-specific one, to identify a more suitable method for measuring carbon emission flows. Results highlighted the opportunity of treating countries individually, rather than employing WWA emission factors. Emissions could be minimized by reducing production levels in countries with lax environmental policies, but this could penalize third-party economies. Sustainable development can be achieved by introducing fair environmental policies, maintaining constant production levels, economically compensating production economies, and exporting skills and know-how. [ABSTRACT FROM AUTHOR]

China's carbon emissions trading policy represents a significant institutional innovation designed to advance the country's economic and social development towards sustainability and low-carbon growth. This study investigates the effects of China's carbon emissions trading policy by employing the difference-in-differences model and spatial Durbin model, using provincial panel data spanning from 2005 to 2020. We find that the carbon emissions trading policy can inhibit per capita carbon emissions in the pilot areas. This work is primarily driven by green technological innovation and the upgrade of industrial structure. Furthermore, the carbon emissions trading policy exhibits a positive spatial spillover effect, inhibits per capita carbon emissions in the areas adjacent to the pilot through demonstration effect and competition effect, and does not cause carbon leakage. These findings reveal the policy's effectiveness in emissions reduction, and may be useful reference for promoting sustainable economic and social development. This is of great practical significance for exploring how to optimize environmental governance measures, avoid carbon leakage, and achieve balance and fairness in responsibilities in achieving low-carbon sustainable development. Our study proposes policy recommendations for synergizing the national trading market in China. [ABSTRACT FROM AUTHOR]

In recent years, with increasing maritime trade, the shipping industry has faced the challenge of mitigating escalating greenhouse gas emissions. This study investigates the cost mitigation strategies of shipping companies in response to three key regulations: the Carbon Intensity Indicator, the EU Emissions Trading System, and the FuelEU Maritime regulation. By proposing optimal speeds for container ships on the Asia–Europe route and examining the potential for carbon leakage, the study aims to predict strategies of shipping companies and derive insights for achieving sustainable regulatory compliance. The results provide a comprehensive analysis of the regulations' impact on operational costs and emissions, with the robustness of the findings confirmed through extensive sensitivity analyses. The discussion highlights the unintended consequences of current regulations that may deviate from the ultimate objectives of reducing GHG emissions and achieving sustainable maritime transport. Ultimately, the study seeks to support the development of effective maritime regulations that align with the operational strategies of shipping companies, emphasizing the need for a holistic approach to achieve the intended outcomes of environmental policies. • Integrated analysis of EU ETS, FuelEU Maritime, and CII regulations in shipping costs. • Case study approach proposes optimal speeds for Asia-Europe container ships. • Results reveal potential carbon leakage due to cost-optimal strategies under regulations. • Unintended consequences highlight the need for a holistic approach to sustainability. • Insights provide guidance for sustainable shipping strategies post-regulation. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

Driven by the motivation to raise the ambition level of climate action and to foster the transformation of economies, current climate policy discourse revolves around ways to improve cooperation between industrialized countries and emerging economies. We identify three broad types of initiatives—multilateral-cross sectoral, multilateral, sector specific, and climate and development partnerships—and assess them for potentials to deliver on such objectives with a specific focus on industry transformation. This paper provides new reflections on the institutionalization of international climate cooperation. Specifically, we demonstrate the urgent need to understand what values, norms, and underlying principles drive a cooperation in order to draw conclusions on how to best institutionalize climate cooperation rules.in-use. We conclude that an overemphasis on a CO2 price and on carbon border adjustment mechanisms, such as in the context of the initial proposals for a cross-sectoral climate club envisaged by G7 countries, would have contributed to a further polarization of the international landscape. We find, however, that multilateral, sectoral alliances play an important role for international goal setting and the convergence on standards, metrics, and benchmarks. Based on our analysis, we recommend strengthening multilateral, sector-specific partnerships. These can be focused on sectoral topics as a connector between countries, allowing for a strategically-aligned, increasingly deep collaboration. However, for any initiative to succeed, processes of international institutionalization will be needed in order to agree on rules for implementation based on aligned interests and equity. Building such institutions may well serve as a steppingstone toward more durable cooperation structures between developed economies and emerging economies. In sum, no existing cooperation approach is perfect, but three actions may be taken to move the agenda forward: First, reform of the carbon border adjustment mechanism and removing it from the center of climate club discussions, second, coupling sectoral alliances with climate and development partnerships, and three, designing them in a way to address fears of political influence seeking and superimposition of global north agendas on the global south. [ABSTRACT FROM AUTHOR]

Associated with more ambitious targets for reducing emissions, the European Union (EU) plans to implement the Carbon Border Adjustment Mechanism (CBAM) fully in 2026, aiming to reduce carbon leakage and competitiveness concerns by imposing tariffs on carbon-intensive imports, which is expected to significantly impact its trade partners. Existing research has focused on CBAM's impact on macroeconomic indicators but has insufficiently addressed its effects on global and regional carbon leakage, especially in non-EU countries like China. This research offers a detailed analysis of industry-specific leakage rates and integrates both global and regional impacts by employing the dynamic recursive GTAP-E general equilibrium model to numerically simulate CBAM's inhibitory effect on carbon leakage under different carbon tariff scenarios, while also exploring the synergistic effects of anti-leakage policies in non-EU countries. Our simulations indicate the following: (1) CBAM effectively inhibits carbon leakage, with greater inhibition observed at higher tax rates and with the expansion of covered industries. (2) Establishing China's domestic carbon market pricing can further reduce regional carbon leakage rates. Implementing global export carbon tax policies will significantly diminish the risk of global carbon leakage. (3) The implementation of CBAM is projected to reduce China's total exports to the EU, though this loss will be partly offset by trade diversion effects. Carbon-intensive industries are more adversely affected in the short term, while all industries except fossil fuels face inevitable long-term negative impacts. [ABSTRACT FROM AUTHOR]

The implementation of asymmetric emission reduction policies can not only increase the cost of reducing emissions but also reduce the effectiveness of climate policies themselves, leading to policy inefficiencies such as carbon leakage. This paper investigates the impact of asymmetric emission reduction policies on the cost-effectiveness and efficiency of climate strategies in North America. Using a model inter-comparison approach, which combines two bottom-up global models and one top-down global model, this study assesses the effects of such policies on fuel substitution, global fossil fuel trade, and emissions in North America and globally. It is the first work where a multi-model approach is used for exploring how different energy systems react to asymmetric carbon policies. This provides critical insights into regional policy design within a global emissions framework. Quantitatively, the study reveals that asymmetric carbon pricing can lead to more than 60% global emissions reduction in certain models, but can also drive trade distortions, where U.S. exemptions result in emissions rising by more than 10% compared to reference scenarios. Qualitatively, significant fuel substitution patterns across Canada, Mexico, and the U.S. demonstrate increased coal consumption when carbon prices are unevenly applied. While no global emission increase was observed, asymmetric policies result in inefficiencies between local policy costs and emissions reduction outcomes, such as rising fossil fuel trade in non-abating regions. The findings suggest that harmonising carbon policies across regions would reduce inefficiencies and minimise carbon leakage.

Abstract The need to decarbonise has accelerated the quest to find solutions for sectors considered emissions-intensive and trade-exposed. Steel production is one such sector. Policymakers are responding with market-pull and technology-push mechanisms. Risks of carbon leakage have prompted consideration and implementation of border carbon mechanisms. Measures have drawn both positive and negative attention in internationally traded markets. This research quantifies the equivalence of differing measures to promote decarbonisation. It simulates the annual cost-saving equivalent and net present values of different mechanisms in a theoretical conversion to steelmaking with Electric Arc Furnace (EAF) technology from traditional steel production. It demonstrates that, under certain assumptions including removal of free allocation of emissions certificates, incentives per tonne of direct and indirect greenhouse gas emissions for carbon pricing and border carbon adjustments lie in the range EUR 18–76 whereas for cost-of-capital support measures it was EUR 24–41 per tCO2e. Whether firms act upon these incentives will depend on appetite for risk, availability of technology, feedstocks, choice they have in making changes and perceived sustainability of the assumptions made in investment analysis. There are implications for regulators, policy makers and managers as they prepare strategies to be competitive in an increasingly carbon-constrained environment.

The European Commission has proposed a Carbon Border Adjustment Mechanism (CBAM) to reduce carbon leakage and create a level playing field for its domestic products and imported goods. Nevertheless, the effectiveness of the proposal remains unclear, especially when it triggers threats of retaliation from trading partners of the European Union. We apply a Computable General Equilibrium model - Global Trade Analysis Project - to assess the economic and environmental impacts of different CBAM schemes. Here we show that the effectiveness of the CBAM to address carbon leakage risks is rather limited, and the CBAM raises concerns over global welfare costs, Correct to Gross Domestic Product (GDP) losses, and violation of equality principles. Trade retaliation leads to multiplied welfare losses, which would mostly be borne by poor countries. Our results question the carbon leakage reduction effect of a unilateral trade policy and suggest that climate change mitigation still needs to be performed within the framework of international cooperation.

(1) Background-Forest carbon sinks is essential to mitigate global climate change, protect biodiversity and promote sustainable development. Mechanisms such as the Clean Development Mechanism ( CDM), Verified Carbon Standard (VCS), Reducing emissions from deforestation and forest degradation in developing countries, plus the sustainable management of forests and the conservation and enhancement of forest carbon stocks, and Chinese Certified Emission Reduction (CCER) have established markets that monetize the carbon sinks potential of forests. These mechanisms incentivize forest conservation and sustainable management and reduce atmospheric carbon dioxide levels. However, opportunities for carbon sinks, particularly in non-CDM forest management, remain underexplored. (2) Methods-This paper firstly analyzed the ways and current situation of forestry carbon sinks entering into domestic and international carbon trading mechanisms. Three key aspects were then critically examined: accurate baseline identification, scientific measurement of additionally, and systematic carbon leakage accounting. These dimensions were analyzed through the comparison of different carbon trading mechanisms, highlighting the methodological variances and their impact on market credibility and effectiveness. (3) Results-This paper identifies significant challenges to incorporating non-CDM forest carbon sinks into current carbon trading schemes. The baseline setting of China's CCER mechanism is too simple, which may lead to inaccurate emission reduction estimates. The baseline is a critical reference point, so a flaw here could undermine the credibility of the mechanism. The Improved Forest Management (IFM) approach uses dynamic baselines from national inventories, but questions remain about its scientific robustness, indicating the need for more context-specific criteria. In addition, this paper reveals the inconsistency of emission reduction measurements between different mechanisms. The IFM approach relies on the biomass-based methods, while the CCER mechanism employs four different methods, leading to considerable differences in results. The diversity of approaches complicates the comparisons of projects and reduces the reliability of emission reduction claims. Finally, the failure of the CCER mechanism to account for leakage is particularly concerning, as it may lead to an overestima-tion of net carbon sinks, distorting the actual impact of projects on global carbon emissions. (4) Conclusions and Discussions-China s carbon trading mechanism is underdeveloped and inadequate to meet the growing demand for carbon credits. Incorporating non-CDM forest management carbon sinks into these mechanisms could significantly improve the valuation and monetization of these activities. However, improvements in baseline selection, additionality assessment, and leakage accounting are necessary. A more sophisticated and scientifically rigorous carbon trading system is essential to accurately assess forest carbon sinks and achieve long-term environmental goals. Therefore, the following methodological suggestions for forestry carbon sinks projects are proposed: First, improve the screening methods of carbon baseline, and adopt the dynamic carbon baseline setting method in combination with the inventory data of forest resources in China. Second, improve the measurement methods of additionality, and formulate detailed evaluation criteria of additionality according to different types of forestry carbon sinks projects. Third, unify the accounting methods for carbon storage. Based on the existing CCER methodology, a unified carbon storage accounting standard is established to reduce the differences between different accounting methods. Fourth, carry out a comprehensive carbon leakage risk assessment for forestry carbon sinks projects, and set a reasonable carbon leakage value according to the actual situation of different projects. [ABSTRACT FROM AUTHOR]

The Carbon Border Adjustment Mechanism (CBAM) proposed by the European Union (EU), commonly known as the ‘carbon tariff,’ is a prominent issue in international governance and has received significant social attention. The EU has completed CBAM legislation and begun concrete implementation. The United Kingdom and United States have proposed similar bills, and the G7 countries have collaborated to lead the establishment of the International Climate Club, which has exhibited trends of legalization, institutionalization, and internationalization. Recently, numerous studies on CBAM have emerged in China, mostly focusing on its direct economic impacts. However, there has been insufficient understanding of the political impacts, a lack of analysis of the logic and inherent flaws of CBAM from a carbon equity perspective, and relatively weak research on synergistic international governance to address the issue. This paper attempts to carry out research on CBAM from the carbon equity perspective, with the following main conclusions: ① The development history of CBAM in the international climate governance process can be divided into four stages: theoretical foresight, brewing and preparation, pilot obstruction, and legislative implementation. This process has demonstrated a trajectory from concept to policy and then to implementation, presenting the characteristics of continuous legalization, institutionalization, and internationalization. ② The EU's logical starting point for the implementation of CBAM lies in carbon leakage. Clarifying the connotation of carbon leakage helps reveal the CBAM's inherent flaws. According to the main conclusions of the Intergovernmental Panel on Climate Change (IPCC) assessment reports, the basic consensus of the international academic community on carbon leakage is that there is no evidence that significant carbon leakage exists, and carbon tariffs are ineffective in reducing it. ③ The CBAM has impacts extending beyond economic aspects, and more importantly, it has had multiple impacts on existing international climate governance in terms of concepts, principles, methods, and objectives. The deep-rooted cause of the CBAM lies in the fragmentation of the international climate governance and international economic and trade governance systems, as well as the conflicting perception of equity among all parties. ④ To resolve the conflicts of CBAM, it is necessary to strengthen international synergistic governance from a carbon equity perspective. Possible strategies include: enhancing dialogue and exchange of the concept of equity among countries considering the new global development challenges; strengthening communication and coordination between international climate governance and international economic and trade governance with the UNFCCC as the main platform; initiating substantive negotiations on carbon tariffs under the UNFCCC; and promoting global value chain development through international cooperation. [ABSTRACT FROM AUTHOR]

The need to decarbonise has accelerated the quest to find solutions for sectors considered emissions-intensive and trade-exposed. Steel production is one such sector. Policymakers are responding with market-pull and technology-push mechanisms. Risks of carbon leakage have prompted consideration and implementation of border carbon mechanisms. Measures have drawn both positive and negative attention in internationally traded markets. This research quantifies the equivalence of differing measures to promote decarbonisation. It simulates the annual cost-saving equivalent and net present values of different mechanisms in a theoretical conversion to steelmaking with Electric Arc Furnace (EAF) technology from traditional steel production. It demonstrates that, under certain assumptions including removal of free allocation of emissions certificates, incentives per tonne of direct and indirect greenhouse gas emissions for carbon pricing and border carbon adjustments lie in the range EUR 18–76 whereas for cost-of-capital support measures it was EUR 24–41 per tCO2e. Whether firms act upon these incentives will depend on appetite for risk, availability of technology, feedstocks, choice they have in making changes and perceived sustainability of the assumptions made in investment analysis. There are implications for regulators, policy makers and managers as they prepare strategies to be competitive in an increasingly carbon-constrained environment. Highlights: Steel subsidisation effects can be expressed as per tCO2e emissions equivalent. Removing ETS free allocation creates strong steel decarbonisation incentive. To level playing field, border carbon adjustments should consider capital structure. Voluntary incentives can drive innovation by firms equally as do mandatory standards. Long-live investments require market assumptions that can be difficult to hedge. [ABSTRACT FROM AUTHOR]

The 'Fit for 55' policy package was presented in the European Commission's Green Deal framework, comprising a set of proposals to improve existing energy and climate legislation. Among its main proposals was a revision of the European Union's Emission Trading System to expand its sectoral coverage. Anticipating the possible loss of competitiveness with carbon pricing within the EU—which may lead to 'carbon leakage'—a carbon border adjustment mechanism (CBAM) was included in the package. This scheme takes the form of an export tax levied by the European Union on some goods manufactured in non-carbon-taxing countries. In this paper, we provide a first-order estimate of the potential impact of CBAM on Morocco's exports using an input–output approach. Our main findings suggest that the scheme would yield a carbon bill ranging from USD 20 to 34 million annually to Moroccan exporters in its initial phase. Morocco can mitigate such economic losses by instituting a national Emission Trading System, a tax reform, or speeding up the decarbonization of its economy. [ABSTRACT FROM AUTHOR]

Tariffs or consumption tax hikes used in isolation engender consumption-based emission spillovers. A combination of these two instruments, if well designed, can offset these spillovers and would result in a zero-sum or win-win welfare outcome. The approach suggested here either strengthens deterrence against free-riders via stricter tariff sanctions or promotes climate cooperation via trade liberalization. The choice of trade and climate policy instruments depends, inter alia, on the relative strength of Home versus Foreign price responsiveness of demand. [ABSTRACT FROM AUTHOR]

Carbon leakage – the increase of greenhouse gas emissions in foreign jurisdictions following the introduction of domestic or regional climate mitigation measures – raises key questions in the climate change debate. This includes whether carbon leakage constitutes a threat to the environmental integrity of climate policies and, if so, how this could be mitigated. Through the use of four hypothetical models of international climate change regime, this article argues that international climate change law is a key factor in answering this two-part question. Firstly, the article demonstrates that the architecture of international climate change law affects whether carbon leakage can be considered as undermining the mitigation objective of climate policies. Secondly, it draws attention to the interaction – and potential tension – between carbon leakage prevention measures and international climate change law. [ABSTRACT FROM AUTHOR]

Carbon border adjustment mechanism aims to level the playing field and reduce carbon leakage through import taxes and/or export subsidies based on the carbon content for products from countries with different levels of carbon policy stringency. The introduction of an EU carbon border adjustment mechanism (CBAM) has triggered a lively debate on its potential impacts, especially among developing countries. In fact, introducing CBAM is not a new idea; researchers in fields of economics and law have investigated this policy over the last decade. Against this backdrop, this study conducts a literature review of the most recent economic studies of CBAM and provides an exhaustive synthesis of this literature. We employ the so-called 'Preferred Reporting Items for Systematic Reviews and Meta-Analysis' approach (PRISMA), which includes an exhaustive screening of studies. Specifically, we identified 97 relevant studies on CBAM from 2004 to 31 August 2021, and conducted descriptive and content analysis of these. Our content analysis highlights the potential impacts of CBAM in terms of its effectiveness across 3 policy objectives: protecting fair competition; reducing carbon leakage; and limiting global welfare costs. We synthesize findings on how policy design and characteristics of an economy lead to different levels and types of effectiveness of a CBAM, and we contrast alternative policy designs across various objectives. Armed with this systematic review of the literature, we spell out insights and challenges in formulating effective CBAM polices. This review thus offers evidenced-based guidance for the policy design of a CBAM and a foundation for further research. There is no one-size-fits-all approach to design and implement CBAM to tackle competitiveness and carbon leakage; policy design and characteristics of the economy matter. According to the effectiveness of CBAM across the 3 policy objectives, alternative policy designs should account for the coverage of trade, of sector(s), and also the means to determine carbon content of traded commodities, the use of revenues collected through CBAM, and the adjustment price. In formulating sound CBAM policies, competitiveness, carbon leakage and welfare evaluation are central economic concerns; however, consistency with the latest international climate policy architecture and fairness issues should also be addressed. [ABSTRACT FROM AUTHOR]

Stricter climate policies across the European Union are enhancing the phenomenon of free riding by nonacting countries, which translates into carbon leakage and loss of competitiveness. This paper investigates the trade, economic and environmental implications of the future implementation of a carbon border adjustment mechanism (CBAM) in Visegrád countries as EU member states. We exploit trade data to estimate price and income elasticities for emission-intensive trade-exposed (EITE) goods imported from non-EU trading partners to Visegrád countries. Based on these estimates, which are combined with the average carbon intensity of the EU's proposed list of EITE goods, we simulate the implications of six different configurations of restrictiveness of the CBAM imposed on imports from non-EU countries. We find that a high price elasticity and carbon intensity tend to significantly decrease import demand for EITE goods under the CBAM. Moreover, future CBAM implementation will yield a relatively small adverse impact on economic growth in Visegrád countries and a small decrease in total carbon emissions in non-EU countries.

In April 2023, the EU institutions finally adopted an innovative international climate policy instrument: the Carbon Border Adjustment Mechanism (CBAM). As the long and winding road to a CBAM has included significant EU‐internal and EU‐external opposition, a “shifting Multi‐Level Reinforcement” (MLR) perspective is helpful for understanding this development. When France assumed initial leadership from 2007, skepticism to the WTO, generous amounts of free allowances, combined with a low carbon price, provided a strong oppositional force. Then, influential elements in the European Parliament called for a carbon border tax, which was subsequently included as a central ingredient in the “Fit for 55” package launched by the Commission, In the decisionmaking process, leadership involving all the previous forces resulted in an institutional reinforcement dynamic strong enough to counter EU‐internal as well as EU‐external challenges and ‘turbulence’. This case shows the relevance of an updated MLR perspective for understanding also other EU processes, taking into account the growing role of both policy packages and trilogues as decisionmaking tools, indicating a possible strengthened role for the Commission also in the decisionmaking phase. [ABSTRACT FROM AUTHOR]

Reducing greenhouse gas emissions from agriculture is crucial to reach global and regional climate targets. However, the efficiency of unilateral climate policies aimed at taxing emissions might be hampered by carbon leakage. One way to eliminate leakage is to implement a global carbon tax. In this article, we study the effects of a carbon tax in agriculture on GHG emissions by simulating five policy scenarios using the CAPRI model; (i) an EU tax, (ii) an EU tax complemented with a border carbon adjustment mechanism (BCA), (iii) a global tax, (iv) a global tax scaled by GDP per capita, and (v) a low global tax at 1/10 of the tax level in the other scenarios. For the global scenarios, we also analyse the impact on food consumption and nutrient intake. We find that a global tax of EUR 120 per ton CO2-eq could reduce global agricultural emissions by 19%, but also jeopardizes food security in some parts of the world. A global tax at 1/10 of that rate (EUR 12) achieves a 3.2% reduction. In contrast, a unilateral EU tax of EUR 120 per ton CO2-eq, accompanied with a BCA, reduces global agricultural emissions by only 0.15%. A unilateral carbon tax in the EU causes significant emission leakage. This result depends strongly on differences in emission intensities between regions and on consumer preferences. A EUR 12 global carbon tax achieves a considerably larger global emission reduction than a EUR 120 unilateral EU carbon tax accompanied with a border carbon adjustment. A global carbon tax differentiated by GDP per capita is less effective than a uniform global carbon tax, as producers with higher emission intensities tend to get lower tax rates. Other ways of taking equity into account should be sought when designing climate policies in the agricultural sector. [ABSTRACT FROM AUTHOR]

Several EU countries have targets for the reduction of CO2e emissions that go beyond the target set by the EU. We study what would be the optimal carbon tax policy in such EU frontrunner countries, focusing on two questions: 1) How should national climate policy be coordinated with the European Emissions Trading System (ETS), and 2) How should an EU frontrunner country address the risk of carbon leakage? We show that these issues are closely linked and that the answers to the two questions depend on the following factors: i) The shadow cost assigned to carbon leakage, ii) The rates of carbon leakage in the ETS and non-ETS sectors, and iii) The price of ETS emission allowances relative to the domestic marginal abatement cost of attaining the desired reduction of domestic emissions. Our analysis shows that it is preferable for an EU frontrunner country to implement a national ETS sector carbon tax that results in a higher total carbon price in the national ETS sector compared to the national non-ETS sector. We illustrate how our theoretical model can be combined with a modified version of the GTAP-E general equilibrium model of the world economy to estimate the parameters of the optimal national carbon tax scheme in an EU frontrunner country, using Denmark as an example. We find that the ETS sector should pay a total carbon price that is between 33 and 78 percent above that of the rest of the economy depending on the aversion to carbon leakage. Key policy insights It is generally optimal for an EU frontrunner country – one with a domestic emission target beyond that set by the EU – to implement a national ETS sector tax. The total national carbon price should be higher in the ETS sector compared to the non-ETS sector. Data for Denmark indicate that the total national ETS sector carbon price should be at least 33 percent higher than that of the national non-ETS sector. [ABSTRACT FROM AUTHOR]

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This paper critically addresses the need for a unified global climate policy, as opposed to region-specific emission trading systems, with a primary aim to contribute valuable insights to the ongoing discourse. Focused on the aluminum, cement, and iron and steel industries outlined in the EU's Carbon Border Adjustment Mechanism (CBAM) proposal, our comprehensive analysis using gravity model for trade, centers on testing the validity of the Pollution Haven Hypothesis and Porter Hypothesis. Drawing on data from 10 major EU economies and 19 OECD partners across continents, our study demonstrates that carbon leakage predominantly occurs through trade channels, wherein countries import carbon-intensive products from less regulated nations. Our findings substantiate the Pollution Haven Hypothesis, revealing unintended pollution havens resulting from stringent environmental regulations, leading to carbon leakage through trade or production relocation. In contrast, supporting the Porter Hypothesis, our research underscores how stringent environmental policies can drive innovation within polluting countries, obviating the need for relocation or product imports. By substantiating both hypotheses, our paper advocates for a globally uniform climate policy and emphasizes the potential drawbacks of asymmetrical approaches. The central aim is to contribute to the understanding of how such policies may inadvertently contribute to trade-induced leakage, undermining the positive impact of local systems on a global scale. In light of ambitious climate targets, our study underscores the urgency for synchronized global efforts, reinforcing the call for consistent policies to effectively address the challenges of climate change. [ABSTRACT FROM AUTHOR]

Carbon policies are often limited to specific regions. To avoid stricter carbon emission requirements, companies relocate production to regions without carbon policies that offer a higher degree of flexibility. This effect is known as carbon leakage. To prevent carbon leakage, carbon tariffs are imposed on carbon emissions imported into regulated regions. We present a new model formulation for the design of a global supply network subject to carbon tariffs and location-specific carbon policies. Relevant carbon emissions are captured by a product carbon footprint. This model plans the locations of manufacturing plants and distribution centers and the transportation between them. In addition, we consider the choice of production technologies to enable carbon reduction. The objective is to minimize the net present value. To solve this supply network design model, we apply a fix-and-optimize heuristic. Our numerical study demonstrates that the heuristic provides high-quality solutions in a reasonable time frame. We indicate that combining carbon tariffs with location-specific carbon policies fundamentally changes the economic and environmental consequences for the network design. In addition, we examine how carbon tariffs and location-specific carbon policies affect the choice of carbon-reducing production technologies.

We investigate the relationship between research and development (R&D) and firm-level carbon emissions to determine whether firm type matters. Multinational corporations (MNCs) with high-level R&D expenditure have a greater ability than domestic companies to generate technologies that will contribute to controlling environmental pollution and climate change. However, we know less about whether MNCs contribute to reducing carbon emissions worldwide, because they also have the ability to overcome controls on pollution levels by shifting their production facilities from regions with more restrictions to those with fewer restrictions. The sample we use includes roughly 20,000 firm-year observations from 44 countries for the period 2003-2019. We find that MNCs decrease their carbon emissions by increasing their R&D spending more than domestic companies do. We further demonstrate that foreign direct investment (FDI) creates opportunities for MNCs to adjust their overall carbon emissions if they are located in developed countries. Key policy insights R&D investment in low-carbon technologies and practices decreases carbon emissions intensity and the impact on average is larger for MNCs than for domestic companies, showing that firm-type matters to emission reduction outcomes. MNCs manage their geographically diversified production so as to avoid reducing overall net global carbon emissions. MNCs may seek to operate in places that are weaker in enforcement of emissions reduction, which in turn raises their net global carbon emissions. MNCs located in developed countries are comparatively more important as corporate actors to drive carbon emission reductions due to changing location of operations. [ABSTRACT FROM AUTHOR]

Amaç: Bu çalışmanın amacı, Avrupa Komisyonu’nun 2021 yılında kamuoyuyla paylaştığı 55’e Uygun Paketi’nin bir regülasyonu olan Sınırda Karbon Düzenleme Mekanizmasının (SKDM) Türkiye’nin en önemli ticaret ortaklarından biri olan AB-27 ile arasındaki mal ve hizmet ticareti üzerine olası etkisini araştırmaktır. Yöntem: Çalışmada, Türkiye’den AB-27 pazarına ithal edilen ürünlerin AB-27 Gümrük Bölgesi’ne girmesi sırasında ortaya çıkması olası karbon maliyeti Girdi-Çıktı analizi kullanılarak hesaplanmıştır. Bu amaçla, Türkiye’nin sektörel ihracat değerleri TÜİK resmi internet sitesinden ve sektörel sera gazı emisyon değerleri yine TÜİK tarafından yayımlanan Sera Gazı Emisyonu Envanteri Raporu’ndan derlenmiştir. Bulgular: Karbon fiyatının 2022 yılı düzeyinde olması durumunda, Türkiye’nin AB-27’ye ihracatının neden olacağı olası karbon maliyeti yaklaşık 3,3 milyar Euro olarak hesaplanmıştır. Ayrıca, ihracat gelirinde en fazla düşüş yaşanması beklenen sektörlerin sırasıyla çimento, elektrik, diğer mineralli ürünler, tarım ve demir-çelik sektörleri olduğu tespit edilmiştir. Özgünlük: Literatürde, 2023 yılında deneme fazı başlayacak SKDM’nin Türkiye ve AB-27 dış ticareti üzerine olası etkisini analiz eden çalışma sayısı oldukça az olup, bu çalışma 2022 yılı güncel ton başına ortalama emisyon fiyatını kullanarak yapılan analizleri içermektedir.

Two transitions, green and digital, are changing the operations and strategies of industrial systems. At the same time, businesses are challenged to be globally competitive. Europe has a very ambitious agenda as it aims to be the first climate-neutral continent in 2050. The european emissions trading scheme (EU ETS) has proven to have facilitated the reduction of significant amounts of greenhouse gas emissions, but the risk of carbon leakage is present. This work seeks to explore these issues and their relationships. Through the use of a long short-term memory (LSTM) neural network, a model is built to determine the price of european union allowance (EUA) as a function of different financial energy futures. The results show that the model is very robust and the EUA tends to vary between 78 and 91 €/tCO2. In addition, a multi-criteria decision analysis (MCDA) is applied to identify the best policy alternatives to enable businesses subject to the EU ETS to be competitive in global markets. The analysis is carried out with the help of academic and industrial experts and it emerges that the criteria considered most relevant are two: (i) public expenditure and its expected benefits and (ii) the industrial ecosystem. The policy implications identify that bonuses should be provided to businesses for innovative solutions that protect both the energy and raw material components. The framework of the 3E (Energy Efficiency, Renewable Energy, and Circular Economy) are critical to businesses' long-term strategies, flanked by digital development.

While the EU is working toward the implementation of the world's first Carbon Border Adjustment (CBA) Mechanism, a gap remains between the ways in which carbon leakage and CBAs are discussed in policy spheres and economic evidence on these topics. The aim of this paper is to bridge this gap by presenting the EU's policy context, systematically reviewing the economic literature on carbon leakage and CBAs, and discussing potential future research avenues. Three channels of leakage are identified in our literature review: the competition, energy and innovation channels. The main finding of this paper is that while the competition channel is well understood and taken into account by policymakers, the energy and innovation channels are generally not considered. Policy recommendations are provided to better account for these two channels. [ABSTRACT FROM AUTHOR]

As an instrument to minimize carbon leakage, the effects and feasibility of Carbon Border Adjustments Mechanism (CBAM) will depend on multiple design options. While the EU has committed to introducing CBAM as part of its green climate deal, pursuing climate efforts to successfully limit global warming requires a collective implementation involving major emitters China and the US. This paper quantifies the distributional impacts of a joint CBAM implementation of in a climate alliance or a club of the EU, the US, and China. Differing from a myriad of studies that focus on unilateral CBAM, this analysis emphasizes collective implications on leakage, sectoral competitiveness, and welfare by projecting climate neutrality relative to current policies and climate targets. Our findings confirm that coalition reduces leakage, improves production on energy-intensive industries, and increases club's welfare relative to a non-CBAM and a unilateral implementation. These are in contrast with some unilateral analytical studies, especially for the US. It is further proof of the potential of CBAM as collective instruments to facilitate mitigation and trade competitiveness. [ABSTRACT FROM AUTHOR]

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In October 2023, the EU Carbon Border Adjustment Mechanism (CBAM), a part of the reform of the European Emissions Trading System (EU ETS), will come into effect. Currently, energy-intensive industries do not need to purchase all of the necessary EU ETS allowances on the market to remain globally competitive, as the remaining allowances are freely allocated to them. The CBAM plans to gradually replace free allowances with a price on the carbon emissions embedded in imports. Following a transitional--primarily monitoring--phase, this price on embedded emissions will be gradually introduced from 2026 on the imports of certain products. While the CBAM can mitigate carbon leakage, production declines in greenhouse-gas intensive industries as a result of limiting free allowances, and rising carbon prices, it cannot compensate for them completely. In particular, the CBAM does not provide sufficient protection for exporters to non-EU countries. It is crucial that the CBAM does not lead to trade conflicts that would make multilateral cooperation more difficult. International cooperation is indispensable, as it is the only way to reduce global emissions. [ABSTRACT FROM AUTHOR]

We analyse the international impact on carbon emissions from national climate legislation in 111 countries over 1996–2018. We estimate trade-related carbon leakage, or net carbon imports, as the difference between consumption and production emissions. Legislation has had a significant negative and roughly similar impact on both consumption and production emissions. The net impact on trade-related emissions is therefore not statistically significant, neither in the short term (laws passed in the last 3 years) nor the long term (laws older than 3 years). We find a significant negative long-term impact on domestic emissions from laws passed by trade partners. This latter specification corresponds to the traditional definition of carbon leakage. Overall, we conclude that there has been no detrimental effect of climate legislation on international emissions. [ABSTRACT FROM AUTHOR]

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The article presents how the concept of the Carbon Border Adjustment Mechanism (CBAM) is reflected in the regulation recently adopted in the EU and what possible effects CBAM may cause. The authors begin with explaining the reasons for the introduction of CBAM. Next, they briefly describe what obligations arise from the mechanism for entities and EU Member States and compare this mechanism to the EU ETS. The challenges facing the mechanism and the possible effects of its implementation are then examined. In the final section, the authors assess the economic impact of the CBAM on the Polish economy, taking into account changes in the price levels, in the value of production, exports and imports, GDP and household consumption in the horizon of 2030. The projection was carried out using the Carbon Regulation Emission Assessment Model (CREAM), which is the static general equilibrium model developed in the Centre for Climate and Energy Analyses (CAKE) at the National Centre for Emission Management (KOBiZE). [ABSTRACT FROM AUTHOR]

There is now widespread agreement that the world community must actively combat climate change and advance green and low-carbon development. In order to deal with the issue of carbon leakage caused by the rising cost of industrial production as a result of policies to reduce greenhouse gas (GHG) emissions, the EU intends to implement the Carbon Border Adjustment Mechanism (CBAM) in its entirety starting in 2026, the pilot phase of which will begin in 2023. This shows the progressive emergence of a new international trade system driven by "climate change actions", "carbon peaking", and "carbon neutrality", which will have a broad and far-reaching impact on China's foreign trade industry. As more industries are being covered by the EU's CBAM, it will exert a negative impact on the social welfare and export of China, the largest trading partner of the EU, even though the existing mechanism has only limited economic impact on China's energy industry. This paper presents policy proposals to actively address the issues and effects of the EU's "carbon tariff" by methodically analyzing the EU CBAM's operation process and, via the development of models, determining the mechanism's influence on social welfare, carbon emissions, and China's exports. [ABSTRACT FROM AUTHOR]

We estimate the effects of a European Carbon Border Adjustment (CBA) mechanism on exports, real GDP, welfare and emissions using the multi-region, multi-sector structural gravity model of Larch and Wanner (2017). Incorporating the main industries covered in the proposal of the European Commission from mid-2021, as well as its other design features, and assuming prevailing CO2 prices, we find only small effects of the European CBA mechanism. EU exports are estimated to decline by 0.04%, while CO2 emissions in EU countries increase by 0.24%. These negligible results mask larger adjustments at the sectoral level. The structural changes will shift the EU economy towards more emission-intensive industries, which will make achieving its climate goals harder. On the positive side, the European CBA mechanism will reduce global emissions by 0.08%. Given the minute economic costs in terms of GDP and welfare losses, the CBA mechanism seems an appropriate policy tool, though its proposed design will not be able to make a significant contribution to mitigating global climate change. [ABSTRACT FROM AUTHOR]

The low-carbon city pilot (LCCP) policy, aimed at promoting the transformation of cities towards low-carbon practices, is an important action for China to mitigate climate change. Though this climate policy brings positive effects in many aspects, the issue of potential carbon leakage due to regional disparity has been overlooked. This paper introduces a novel approach by employing the spatial DID model and prefecture-level city data to assess the LCCP policy and its implications for carbon leakage. The innovative aspect lies in its spatially differentiated analysis, which reveals that while the LCCP policy effectively reduces carbon emissions of local pilot cities, it simultaneously triggers carbon leakage to neighboring non-pilot cities, with the leakage effects diminishing with increasing distance. Additionally, this study uncovers that carbon leakage risks are mitigated when multiple pilot cities are geographically clustered, enhancing the overall effectiveness of the policy. Finally, the impact channel analysis uniquely identifies that carbon leakage results from the inter-city relocation of high-carbon industries, such as manufacturing, which exhibits spatial attenuation and temporal lag effects. This study advances the understanding of low-carbon city pilot programs and provides valuable insights for mitigating carbon leakage risks. • Assess and decompose the carbon leakage effects of low-carbon city pilots (LCCP). • Identify the main channels leading to carbon leakage from the perspective of inter-city industrial relocation. • LCCP generates significant carbon leakage for neighboring non-pilot cities. • LCCP increases the manufacturing relocation to neighboring cities, which is the main channel of the carbon leakage. • Coordinated carbon reductions can be achieved when multiple pilot cities are in geospatial proximity to each other. [ABSTRACT FROM AUTHOR]

The transition to renewable energy sources is crucial for combating climate change and enhancing energy security. However, along with well-acknowledged benefits, the energy transition may impose overlooked and unintentional risks to sustainability, stemming from patterns of trade between countries. The buildup of solar and wind energy capacity requires critical metals and equipment that are often imported, while too ambitious renewable energy and climate policies may lead to the offshoring of energy- and carbon-intensive industries, resulting in carbon leakage. This study uses principal component and cluster analyses to estimate indicators of trade-related energy security and carbon dioxide emissions embedded in trade of the sixty-four countries. The analysis indicates that wealthier countries, particularly those that are not energy self-sufficient, are more likely to utilize solar and wind energy. Solar and wind energy use is also associated with higher imports of embedded energy and emissions, as well as imports of metals and equipment required for renewable energy production. In contrast, energy-self-sufficient countries, being net exporters of both energy and energy embedded in products, barely use solar and wind for electricity generation and hardly import metals or low-carbon technologies. This study highlights the need to account for possible cross-border dependencies and displaced emissions, which may result from higher reliance on distributed renewable energy sources. [Display omitted] • The energy transition faces sustainability challenges due to cross-border trading. • Principal component and cluster analyses applied to analyze country-level data. • Renewable energy is linked to reliance on imported emissions and embedded energy. • Renewables may elevate dependence on imported metals and low-carbon equipment. • The World Energy Trilemma Index should account for cross-border interdependencies. [ABSTRACT FROM AUTHOR]