The Role of Border Measures in the Design of Unilateral Climate Policy

Issues of competitiveness and emissions leakage have been at the fore of the climate policy debate in all the major economies implementing or proposing to implement significant emissions cap-and-trade programs. While unilateral policy cannot directly impose emissions prices on foreign sources, it can complement domestic emissions pricing with border carbon adjustments to reduce leakage and increase global cost-effectiveness. Theory suggests that border adjustment measures constitute a second-best instrument to complement unilateral emissions pricing. Although border measures have a theoretical efficiency rationale, their practical implementation is subject to serious caveats. Against this background, this workshop featured a model comparison study, the primary objective of which is to assess the efficiency and distributional impacts of border measures in order to provide answers to the following key policy questions:

• How effective are border measures in reducing carbon leakage?
• How big are the global cost savings from border measures compared to domestic emissions pricing without additional import tariffs and/or export subsidies?
• What is the incidence of border measures across regions? Do they lead to a more "equitable" distribution of economic adjustment costs or do they shift the burden from richer industrialized countries to poorer developing countries?
• Are border measures an effective tool for the protection of emissions-intensive and trade-exposed industries in unilaterally abating regions?
  

To gain robust quantitative insights into these questions, the study builds on model-based analysis of 12 expert groups that jointly study a set of pre-defined policy scenarios with harmonized assumptions and common datasets. Furthermore, each expert group complements the joint assessment with additional analysis on a specific policy-relevant topic in the context of unilateral climate policy design.

The workshop started with an overview presentation, summarizing the major findings of the model cross-comparison. After that, the insights from the specific contributions were grouped by theme, with presentations that lasted 15 minutes each, complemented with invited comments and open discussion.

Schedule

Tuesday, September 4

8:45 – 9:15 a.m.​ Breakfast​9:15 – 9:30 a.m.​ Welcome
Phil Sharp, President, RFF
​9:30 – 10:45 a.m.​ Session 1: Overview of Border Measures and the Role of Global Energy Markets in Carbon Leakage

"Summary: Issues and Insights"
(Download Presentation) (Download Paper) Thomas Rutherford, Christoph Böhringer, and Ed Balistreri

"Fossil Fuel Supply, Leakage and the Effectiveness of Border Measures in Climate Policy" (Download Paper) Authors: Stefan Boeters and Johannes Bollen
Modeling Group: Netherlands Bureau for Economic Policy Analysis

Discussion:
James L. Smith, Southern Methodist University and RFF (Download Presentation)
Liwayway Adkins, US Department of Energy​​

10:45 – 11:15 a.m.​ Coffee Break
​11:15 a.m. – 12:30 p.m.​ Session 2: The Role and Representation of Energy-Intensive Industries

"The Value-Added of Sectoral Disaggregation: Implications on Competitive Consequences of Climate Change Policies"
(Download Paper) (Download Presentation)
Authors: Victoria Alexeeva-Talebi, Christoph Böhringer,
Andreas Löschel, and Sebastian Voigt
Modeling Group: Centre for European Economic Research (ZEW)

"Subglobal Carbon Policy and the Competitive Selection of Heterogeneous Firms" (Download Paper) Authors: Ed Balistreri and Thomas Rutherford
Modeling Group: Colorado School of Mines

Discussion:  
Ann Wolverton, US Environmental Protection Agency​
Samuel Grausz, Climate Advisers
Joshua Linn, RFF

12:30 - 1:30 p.m.​ Lunch
​1:30 - 3:00 p.m.​ Session 3: Process Emissions, Other Greenhouse Gases, and the Calculation of Border Adjustments

"Border Tax Adjustments in the Climate Policy Context: CO2 versus Broad-Based GHG Emission Targeting"
(Download Paper) (Download Presentation) 
Authors: Madanmohan Ghosh, Deming Luo, Muhammad Shahid Siddiqui, Yunfa Zhu
Modeling Group: Analysis and Modeling Division, Environment Canada

"The Relevance of Process Emissions for Global Carbon Leakage: A Comparison of Unilateral Climate Policy Options with and Without Border Carbon Adjustment" (Download Paper) Authors: Birgit Bednar-Friedl, Karl Steininger and Thomas Schinko
Modeling Group: Wegener Center

"Alternative Designs for Tariffs on Embodied Carbon: A Global Cost-Effectiveness Analysis" (Download Paper) (Download Presentation)
Authors: Christoph Böhringer, Brita Bye, Taran Faehn, and
Knut Einar Rosendahl
Modeling Group: Statistics Norway

Discussion:
Allen A. Fawcett, US Environmental Protection Agency
Bella Tonkonogy, US Department of the Treasury​

3:00 - 3:30 p.m.​ Coffee Break
​3:30 - 5:00 p.m.​ Panel and Group Discussion: Applying Lessons to the Design of Border Carbon Adjustments (BCAs)
Joe Aldy, Harvard University​
Aaron Cosbey, International Institute for Sustainable Development
Ger Klaassen, European Commission
Gilbert Metcalf, US Department of the Treasury
Tom Rutherford, University of Wisconsin-Madison

Wednesday, September 5

8:30 - 9:00 a.m​ Breakfast
​9:00 – 10:00 a.m.​ Session 4: International Equity Issues

"Fair, Optimal or Detrimental? Environmental vs. Strategic Use of Border Carbon Adjustment"
(Download Paper) (Download Presentation)
Authors: Matthias Weitzel, Michael Hübler, and Sonja Peterson
Modeling Group: Institute for World Economics (IfW)

"Unilateral Climate Policy Design: Efficiency and Equity Implications of Alternative Instruments to Reduce Carbon Leakage"
(Download Paper) (Download Presentation) Authors: Christoph Böhringer, Jared C. Carbone, and Thomas F. Rutherford
Modeling Group: Oldenburg-Calgary-Madison

Discussion:
Susanne Droege, German Institute for International and Security Affairs
Ian Parry, International Monetary Fund (Download Presentation)​

10:00 – 10:30 a.m.​ Coffee break​10:30 – 12:00 p.m.​ Session 5:  Alternative Approaches for Improving the Efficiency of Unilateral Carbon Regulations

"A Look Inwards: Carbon Tariffs versus Internal Improvements in Emissions-Trading Systems" (Download Paper) (Download Presentation) 
Authors: Marco Springmann
Modeling Group: German Institute for Economic Research (DIW) "Climate Policy and Fiscal Constraints: Do Tax Interactions Outweigh Carbon  Leakage?" (Download Paper) (Download Presentation) 
Authors: Carolyn Fischer and Alan Fox
Modeling Group: Resources for the Future (RFF) and US International  Trade Commission "Alternative Approaches for Levelling Carbon Prices in a World with Fragmented Carbon Markets"
(Download Paper) (Download Presenation) 
Authors: Elisa Lanzi, Jean Chateau and Rob Dellink
Modeling Group: Organisation for Economic Cooperation
and Development (OECD) Discussion:
Terry Dinan, Congressional Budget Office
Adele Morris, The Brookings Institution (Download Presentation) ​​12:00 – 12:30 p.m. ​Break