Article

The economics of carbon leakage mitigation policies

Stefan Ambec, Federico Esposito et Antonia Pacelli

Résumé

In a trade model with endogenous emissions abatement, we investigate the impact of three policy instruments aimed at mitigating carbon leakage: free emission allowances, a Carbon Border Adjustment Mechanism (CBAM), and a CBAM with export rebates. We show that providing free allowances does not alter the incentives to abate carbon emissions, but, instead fosters the entry of more carbon intensive producers. This “levels the playing field” both domestically and internationally, and may even reverse carbon leakage. In contrast, a CBAM only levels the playing field domestically, and may lead to an autarky equilibrium. To reverse carbon leakage, a CBAM must be complemented with export rebates. We further show that a CBAM and export rebates improve welfare for any carbon price, and we identify the optimal share of free allowances with or without a CBAM. Finally, we perform a calibration exercise on cement and steel sectors to simulate the effects of the CBAM recently adopted by the European Union. Our model predicts a scenario with reverse carbon leakage and significant welfare gains for both sectors.

Mots-clés

Carbon pricing; Trade; Carbon leakage; CBAM; Free allowances; Export rebates;

Codes JEL

  • F13: Trade Policy • International Trade Organizations
  • F18: Trade and Environment
  • H23: Externalities • Redistributive Effects • Environmental Taxes and Subsidies
  • Q52: Pollution Control Adoption Costs • Distributional Effects • Employment Effects
  • Q54: Climate • Natural Disasters • Global Warming
  • Q58: Government Policy

Remplace

Stefan Ambec, Federico Esposito et Antonia Pacelli, « The economics of carbon leakage mitigation policies », TSE Working Paper, n° 23-1408, janvier 2023, révision septembre 2023.

Référence

Stefan Ambec, Federico Esposito et Antonia Pacelli, « The economics of carbon leakage mitigation policies », Journal of Environmental Economics and Management, vol. 125, n° 102973, mai 2024.

Publié dans

Journal of Environmental Economics and Management, vol. 125, n° 102973, mai 2024