Border Carbon Adjustments: Rationale, Design and Impact

Author/Editor:

Michael Keen ; Ian Parry ; James Roaf

Publication Date:

September 27, 2021

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper assesses the rationale, design, and impacts of border carbon adjustments (BCAs). Large disparities in carbon pricing between countries raise concerns about competitiveness and emissions leakage. BCAs are potentially the most effective domestic instrument for addressing these challenges—but design details are critical. For example, limiting coverage of the BCA to energy-intensive, trade-exposed industries facilitates administration, and initially benchmarking BCAs on domestic emissions intensities would ease the transition for trading partners with emission-intensive production. It is also important to consider how to apply BCAs across countries with different approaches to emissions mitigation. BCAs alone do not solve the free-rider problem in carbon pricing, but might be a step to an effective international carbon price floor.

Series:

Working Paper No. 2021/239

Frequency:

regular

English

Publication Date:

September 27, 2021

ISBN/ISSN:

9781557752567/1018-5941

Stock No:

WPIEA2021239

Pages:

42

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