Comparing Policies
to Combat Emissions Leakage
Carolyn Fischer
Resources for the Future
Outsourcing GHGs?
• Lack of emissions pricing
on the part of key trade
partners is major
stumbling
stu
b g bblock
oc towa
towardd
adopting significant
policies for reducing GHG
emissions
• Search for countervailing
policies for tradesensitive, energy-intensive
sectors
2
Sources of Reductions and Leakage
% of Domestic Sector Reductions
All Covered
Sectors
Energy Intensive
Manufacturing
Leakage
L
40%
20%
Leakage from intensity
change
h
R
Reductions
s
0%
-20%
Leakage from
production change
-40%
Domestic reductions
from intensity change
Domestic reductions
from production
change
-60%
-80%
-100%
3
What Tools are Available to Limit
L k ?
Leakage?
• Global action on emissions ppricingg and reductions
•
•
•
•
Border adjustment for imports
Rebate
b for exports
Full border adjustment (both)
Output based rebates of allowances for regulated
Output-based
entities (OBR)
• Exempting trade-sensitive sectors
• Weakening emissions targets
4
Policy Tradeoffs and Limitations
• None can address leakage
g unrelated to pproduction
shifting
• All promote domestic production to some extent
• None
N
necessaril reduces
necessarily
red ces global emissions from
those sectors
– Repatriating emissions home from abroad
• Relative effectiveness depends on consumer and
trade sensitivities, emissions rates
• Each faces questions/hurdles in WTO
– Import adjustments only option that can differentiate
among trade partners, but that may not be allowed
5
Share of Production Loss Avoided
by Sector and Policy Option
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Electricity
Refineries
Chemicals
Export Rebate
Import tax (foreign carbon rate)
Export Rebate
Import tax (home carbon rate)
Nonmetallic Pulp & Paper Iron & Steel
Metals & Minerals
(Glass & Cement)
Full Border Adjustment (foreign carbon rate)
Full Border Adjustment
j
((home carbon rate))
Output-Based Rebates
6
Additional Global Emissions Reductions
Relative to Carbon Tax Alone
(Percent of Sector Reductions)
10%
5%
0%
Electricity
Refineries
Pulp & Paper
Nonmetallic
Metals
M
t l & Minerals
Mi
l
(Glass & Cement)
Chemicals
5%
-5%
-10%
-15%
-20%
-25%
-30%
30%
-35%
Export Rebate
Import tax (foreign carbon rate)
Full Border Adjustment (foreign carbon rate)
Export Rebate
Import tax (home carbon rate)
Full Border Adjustment (home carbon rate)
Output-Based Rebates
7
Iron & Steel
Summary: Policy Options
• For most sectors,, full border adjustment
j
is most
effective for additional global emissions reductions
• But when border adjustment is limited to the home
emissions
i i
rate or lower
l
(e.g.
(
best
b practice),
i ) outputbased rebating can be more effective
– Bad idea for energy sectors (electricity
(electricity, refining) where
conservation is important
• OBR usually better at encouraging production
• Different countries may have different rankings
• All policies limited in improving net reductions
8
Additional Tradeoffs
• For border adjustment
j
– Rules of origin are complicated (not to mention carbon
calculations) and products could simply be diverted
– Not clear whether would function as stick or spoiler
for negotiating partners
• For output-based allocation
– Also supports production destined for domestic
consumption, which drives up costs of cap if overused
for sectors where conservation is cost-effective
• Need to define eligibility carefully
– Can be complicated to define products and measure of
output
– Can
Can’tt differentiate among trade partners
9
Where do Emissions Go?
Leakage from Production Shifting
in the Iron and Steel Sector
Asia ((other))
2%
ROW
14%
Brazil
2%
Canada
9%
14%
Middle East
Japan
3%
6%
Brazil
8%
China
17%
CEA
3%
China
10%
CEA
1%
11%
Asia (other)
ROW
5%
India
1%
Europe
India
3%
Middle East
1%
FSU
2%
Aus NZ
Aus NZ 0%
Japan
1%
1%
FSU
11%
Europe
3%
US
72%
Canada
US
10
Thanks
• Alan K.
K Fox (coauthor)
U.S. International Trade Commission
• Mistra Foundation
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