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GTAP Resource #3667

"Using Embodied Carbon To Control Carbon Leakage"
by Rutherford, Thomas, Jared Carbone and Christoph Böhringer

A sizable literature using multi-regional input-output (MRIO) models to analyze the life cycle carbon emissions (embodied carbon) associated with the consumption of goods has recently developed. One of the major policy positions advanced by the authors of these studies is the idea that countries could more effectively combat increases in foreign emissions (or carbon leakage) by implementing consumption-based climate policies. These policies would regulate emissions based on the embodied carbon of domestically consumed goods rather than regulating emissions from domestic production activities directly. This logic is based on the observation that imported goods would carry embodied carbon measures that include emissions generated in foreign production. Surprisingly, there has been no attempt to validate this claim by simulating the effects on the world economy of implementing such a policy. We use the GTAP 7.1 dataset and a multi-regional general equilibrium (MRGE) model to explore the effects of implementing one popular consumption-based proposal - imposing tariffs on imports proportional to the size of their embodied carbon. In scenarios where all OECD countries are assumed to impose tariffs on all non-OECD countries, we find that these carbon tariffs do reduce foreign emissions. However, the reduction in imports required to produce a given reduction in foreign emissions is typically quite large and, as a result, the global effciency cost of using carbon tariffs is quite high. The policies are undermined primarily by the ability of non-OECD exporters to find alternative markets for their carbon-intensive goods. Furthermore, we find that the costliness of these proposals has about as much to do with their effect on leakage as their ability to precisely target foreign emissions sources.

Resource Details (Export Citation) GTAP Keywords
Category: 2011 Conference Paper
Status: Published
By/In: Presented at the 14th Annual Conference on Global Economic Analysis, Venice, Italy
Date: 2011
Created: Rutherford, T. (4/19/2011)
Updated: Rutherford, T. (4/19/2011)
Visits: 1,581
- Climate change policy

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