Showing papers by "Christoph Böhringer published in 2013"

The Strategic Value of Carbon Tariffs

Abstract: Unilateral carbon policies are inefficient due to the fact that they generally involve emission reductions in countries with high marginal abatement costs and because they are subject to carbon leakage In this paper, we ask whether the use of carbon tariffs — tariffs on the carbon embodied in imported goods — might lower the cost of achieving a given reduction in world emissions Specifically, we explore the role tariffs might play as an inducement to unregulated countries adopting emission controls of their own We use an applied general equilibrium model to generate the payoffs of a policy game In the game, a coalition of countries regulates its own emissions and chooses whether or not to employ carbon tariffs against unregulated countries Unregulated countries may respond by adopting emission regulations of their own, retaliating against the carbon tariffs by engaging in a trade war, or by pursuing no policy at all In the unique Nash equilibrium produced by this game, the use of carbon tariffs by coalition countries is credible China and Russia respond by adopting binding abatement targets to avoid being subjected to them Other unregulated countries retaliate Cooperation by China and Russia lowers the global welfare cost of achieving a 10% reduction in global emissions by half relative to the case where coalition countries undertake all of this abatement on their own

Two Decades of European Climate Policy: A Critical Appraisal

Abstract: Climate change ranks high on the policy agenda of the European Union (EU) which considers itself as a leading force in the battle against anthropogenic climate change. The EU is committed to the objective of limiting the rise in global average temperature to no more than 2°C above pre-industrial levels to prevent dangerous anthropogenic interference with the climate system. This article provides a critical appraisal of two decades of EU climate policy. Based on the global nature of climate change, we present three criteria for sound unilateral action and evaluate current EU climate policy against these criteria. We find that the actual implementation of EU climate policies is likely to make emission abatement much more costly than necessary.

Clean-development investments: an incentive-compatible CGE modeling framework

Abstract: The Clean Development Mechanism established under the Kyoto Protocol allows industrialized Annex I countries to offset part of their domestic emissions by investing in emissions-reduction projects in developing non-Annex I countries. Computable general equilibrium analysis of the Clean Development Mechanism's impacts so far mimics the Clean Development Mechanism as a sector emissions trading scheme, thereby overstating its potential to save climate change mitigation costs. This study develops a novel approach that represents the Clean Development Mechanism more realistically by compensating Clean Development Mechanism implementing sectors for additional abatement cost and by endogenizing Clean Development Mechanism credits as a function of investment. Compared with previous representations, the proposed approach is more consistent in its incentive structure and investment characteristics at the sector level. An empirical application of the new methodology demonstrates that the economy-wide cost savings from the Clean Development Mechanism tend to be lower than suggested by conventional modeling approaches while Clean Development Mechanism implementing sectors do not lose in output.

Unilateral Climate Policy and Competitiveness: Economic Implications of Differential Emission Pricing

Abstract: Unilateral emission reduction commitments raise concerns on international competitiveness and emission leakage that result in preferential regulatory treatment of domestic energy-intensive and trade-exposed industries. Our analysis illustrates the potential pitfalls of climate policy design which narrowly focuses on competitiveness concerns about energy-intensive and trade-exposed (EITE) branches. The sector-specific gains of preferential regulation in favour of these branches must be traded off against the additional burden imposed on other industries. Beyond burden shifting between industries, differential emission pricing bears the risk for substantial excess cost in emission reduction as policy concedes (too) low carbon prices to EITE industries and thereby foregoes relatively cheap abatement options in these sectors. From the perspective of global cost-effectiveness we find that differential emission pricing of EITE industries hardly reduces emission leakage since the latter is driven through robust international energy market responses to emission constraints. As a consequence the scope for efficiency compared to uniform pricing is very limited. Only towards stringent emission reduction targets will a moderate price differentiation achieve sufficient gains from leakage reduction to offset the losses of diverging marginal abatement cost.

Unilateral Climate Policy: Can OPEC Resolve the Leakage Problem?

Abstract: In the abscence of a global agreement to reduce greenhouse gas emissions, individual countries have introduced national climate policies. Unilateral action involves the risk of relocating emissions to regions without climate regulations, i.e., emission leakage. A major channel for leakage are price changes in the international oil market. Previous studies on leakage have assumed competitive behaviour in this market. Here, we consider alternative assumptions about OPEC’s behaviour in order to assess how these affect leakage and costs of unilateral climate policies. Our results based on simulations with a large-scale computable general equilibrium model of the global economy suggest that assumptions on OPEC’s behaviour are crucial to the impact assessment of unilateral climate policy measures. We find that leakage through the oil market may become negative when OPEC is perceived as a dominant producer, thereby reducing overall leakage drastically compared to a setting where the oil market is perceived competitive.

European Union's Emissions Trading System

Abstract: This article reviews the basic features of the European Union Emissions Trading System (EU ETS). It discusses the role of the EU ETS within a more general EU climate policy and describes the major aspects of its design in the first two periods (2005–12) as well as future developments. The authors analyze obstacles to economic efficiency in EU climate policy and discuss future perspectives of emissions trading within the EU.

Border tax adjustments: Can energy and carbon taxes be adjusted at the border?

Abstract: Will die Schweiz mit unilateralen energie- und klimapolitischen Massnahmen ambitionierte Ziele verfolgen, dann erfahren energieintensive Sektoren Nachteile im internationalen Wett- bewerb. Produktionsverlagerungen und „carbon leakage“ sind die Folgen, was nicht im Sinne der Schweizer Wirtschaft und der globalen Klimaziele ist. Mit Grenzausgleichsmassnahmen (BAM) kann die Schweiz ihre energieintensiven Betriebe nicht vor internationalen Wettbe- werbsnachteilen schutzen. Weiter kommt hinzu, dass die Einfuhrung von BAM aus rechtli- cher Sicht „riskant“ ist und bei einem Schweizer Alleingang mit hohen Vollzugshurden ge- rechnet werden muss. Fur die Schweiz macht eine Einfuhrung von BAM nur im Rahmen ei- ner grosseren Klimakoalition Sinn (bspw. zusammen mit der EU). Alternativen zu BAM sind die einfacher und autonom umsetzbaren Ausnahmeregelungen fur energieintensive Betriebe oder Output-based-allocation-Systeme.

Unilateral Climate Policy: Can OPEC resolve the Leakage Probem?

Abstract: In the abscence of a global agreement to reduce greenhouse gas emissions, individual countries have introduced national climate policies. Unilateral action involves the risk of relocating emissions to regions without climate regulations, i.e., emission leakage. A major channel for leakage are price changes in the international oil market. Previous studies on leakage have assumed competitive behaviour in this market. Here, we consider alternative assumptions about OPEC’s behaviour in order to assess how these affect leakage and costs of unilateral climate policies. Our results based on simulations with a large-scale computable general equilibrium model of the global economy suggest that assumptions on OPEC’s behaviour are crucial to the impact assessment of unilateral climate policy measures. We find that leakage through the oil market may become negative when OPEC is perceived as a dominant producer, thereby reducing overall leakage drastically compared to a setting where the oil market is perceived competitive.

Clean-Development Investments: An Incentive-Compatible CGE Modelling Framework

Abstract: The Clean Development Mechanism (CDM) established under the Kyoto Protocol allows industrialized Annex I countries to offset part of their domestic emissions by investing in emissions-reduction projects in developing non-Annex I countries. We present a novel CDM modelling framework which can be used in computable general equilibrium (CGE) models to quantify the sector-specific and macroeconomic impacts of CDM investments. Compared to conventional approaches that mimic the CDM as sectoral emissions trading, our framework adopts a microeconomically consistent representation of the CDM incentive structure and its investment characteristics. In our empirical application we show that incentive compatibility implies that the sectors implementing CDM projects do not suffer, and that overall cost savings from the CDM tend to be lower than suggested by conventional modelling approaches.