{
  "title": "Carbon Pricing: What Role for Border Carbon Adjustments?",
  "publication": "Staff Climate Notes, September 27, 2021",
  "sourceUrl": "https://www.imf.org/en/publications/staff-climate-notes/issues/2021/09/24/carbon-pricing-what-role-for-border-carbon-adjustments-464805",
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  "summary": "This Climate Note discusses the rationale, design, and impacts of border carbon adjustments (BCAs), charges on embodied carbon in imports potentially matched by rebates for embodied carbon in exports.",
  "sections": [
    {
      "heading": "Summary and Rationale",
      "content": "- Border carbon adjustments (BCAs) are charges on embodied carbon in imports potentially matched by rebates for embodied carbon in exports.\n- BCAs aim to address concerns from large disparities in carbon pricing between countries, specifically:\n  - Competitiveness impacts on domestic industries.\n  - Emissions leakage across borders.\n- The Climate Note finds BCAs are a potentially effective instrument for addressing such concerns, conditional on careful design."
    },
    {
      "heading": "Key Findings",
      "content": "- Design details are critical to BCA effectiveness and acceptability.\n- Limiting coverage to energy-intensive, trade-exposed industries:\n  - Facilitates administration.\n  - Targets sectors most at risk of competitiveness loss and leakage.\n- Initially benchmarking BCAs on domestic emissions intensities:\n  - Would help ease the transition for emissions-intensive trading partners.\n- Applying BCAs across countries with different approaches to emissions mitigation requires careful consideration of methodological and equity implications.\n- BCAs pose legal risks and may conflict with the differentiated responsibilities of developing countries under international frameworks.\n- BCAs provide only modest incentives for other large emitting countries to scale up domestic carbon pricing.\n- An international carbon price floor would be far more effective than BCAs in incentivizing large emitters to scale carbon pricing."
    },
    {
      "heading": "Design Considerations and Recommendations",
      "content": "- Coverage:\n  - Focus on energy-intensive, trade-exposed industries to simplify administration and target effectiveness.\n- Benchmarking:\n  - Start with benchmarking on domestic emissions intensities to ease transition for partners with high emissions intensity.\n- Treatment across policy regimes:\n  - Develop rules to account for countries with different mitigation approaches to avoid double regulation or exemption loopholes.\n- Legal and equity considerations:\n  - Assess World Trade Organization rules and legal risks before implementation.\n  - Consider the implications for differentiated responsibilities of developing countries.\n- Complementary international policy:\n  - Pursue international solutions—such as an international carbon price floor—to achieve stronger incentives for global carbon pricing than BCAs alone."
    },
    {
      "heading": "Limitations and Risks",
      "content": "- Legal risks under international trade law.\n- Potential tension with the principle of differentiated responsibilities for developing countries.\n- Modest leverage on other large emitters compared with coordinated international pricing mechanisms.\n\n---\n\n Content in this bundle\n\n- Carbon Pricing: What Role for Border Carbon Adjustments?; September 27, 2021\n  - Carbon Pricing: What Role for Border Carbon Adjustments?; September 27, 2021 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Carbon Pricing: What Role for Border Carbon Adjustments?; September 27, 2021 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/staff-climate-notes/issues/2021/09/24/carbon-pricing-what-role-for-border-carbon-adjustments-464805"
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    "Authors: Ian W.H. Parry, Peter Dohlman, Cory Hillier, Martin D Kaufman, Florian Misch, James Roaf, Christophe J Waerzeggers, Miss Kyung Kwak",
    "Published: September 27, 2021",
    "Series: Staff Climate Notes",
    "DOI: https://doi.org/10.5089/9781513594545.066",
    "Border carbon adjustments (BCAs) are charges on embodied carbon in imports potentially matched by rebates for embodied carbon in exports.",
    "BCAs aim to address concerns from large disparities in carbon pricing between countries, specifically:",
    "The Climate Note finds BCAs are a potentially effective instrument for addressing such concerns, conditional on careful design.",
    "Design details are critical to BCA effectiveness and acceptability.",
    "Limiting coverage to energy-intensive, trade-exposed industries:",
    "Initially benchmarking BCAs on domestic emissions intensities:",
    "Applying BCAs across countries with different approaches to emissions mitigation requires careful consideration of methodological and equity implications.",
    "BCAs pose legal risks and may conflict with the differentiated responsibilities of developing countries under international frameworks.",
    "BCAs provide only modest incentives for other large emitting countries to scale up domestic carbon pricing.",
    "An international carbon price floor would be far more effective than BCAs in incentivizing large emitters to scale carbon pricing.",
    "Coverage:",
    "Benchmarking:",
    "Treatment across policy regimes:",
    "Legal and equity considerations:",
    "Complementary international policy:",
    "Legal risks under international trade law.",
    "Potential tension with the principle of differentiated responsibilities for developing countries.",
    "Modest leverage on other large emitters compared with coordinated international pricing mechanisms.",
    "**Carbon Pricing: What Role for Border Carbon Adjustments?; September 27, 2021**"
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