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Designing a globally acceptable carbon tax scheme to address competitiveness and leakage concerns

: Zhu, Lei; Cui, Lianbiao; Schleich, Joachim

Postprint urn:nbn:de:0011-n-6029082 (477 KByte PDF)
MD5 Fingerprint: f0226d2b24955c45d1142cb89720d891
Erstellt am: 20.05.2021

Climate change economics 11 (2020), Nr.2, Art. 2050008, 26 S.
ISSN: 2010-0078
ISSN: 2010-0086
Zeitschriftenaufsatz, Elektronische Publikation
Fraunhofer ISI ()
differentiated carbon tax scheme; carbon tariffs; cost fairness principle; competitive advantage; global trade analysis model

To address competitiveness and leakage concerns in international climate policy, this paper proposes a differentiated carbon tax scheme (DCT), which largely preserves the relative competitive positions of developed and developing countries. The paper first presents a theoretical model from which to derive the DCT. Then, employing a global trade analysis model, competitiveness and leakage effects under a DCT are simulated and contrasted to those of a unilateral carbon tax, a carbon tariff, and a uniform carbon tax. The results of our analysis suggest that: (1) under the proposed DCT, emission reductions in developed and developing countries are higher and leakage is lower than under a carbon tariff; (2) the DCT has weaker competitiveness effects than a carbon tariff; and (3) the DCT is more favorable to developing countries' output and welfare than a carbon tariff or a uniform global carbon tax. Developing countries may therefore embrace a DCT as an intermediate step towards the implementation of a global carbon tax.