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Carbon Pricing: What Role for Border Carbon Adjustments?
Author:
Ian W.H. Parry null

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Mr. Peter Dohlman
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Mr. Cory Hillier
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Mr. Martin D Kaufman
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Florian Misch
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Mr. James Roaf
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Mr. Christophe J Waerzeggers
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Miss Kyung Kwak
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Series:
Staff Climate Notes
Volume/Issue:
Volume 2021: Issue 004
Language:
English
Publication Date:
27 Sep 2021
DOI:
https://doi.org/10.5089/9781513594545.066
ISBN:
9781513594606
Pages:
20
Keywords:
Border carbon adjustment, climate mitigation, carbon pricing, competitiveness, emissions leakage, allowance allocation, design issues, World Trade Organization rules; IMF staff climate note; border carbon adjustments; climate mitigation; emissions leakage; BCA to energy-intensive; Greenhouse gas emissions; Climate change; Imports; Export subsidies; Global
Legal-disclaimer:
The IMF Notes Series aims to quickly disseminate succinct IMF analysis on critical economic issues to member countries and the broader policy community. The IMF Staff Climate Notes provide analysis related to the impact of climate change on macroeconomic and financial stability, including on mitigation, adaptation, and transition. The views expressed in IMF Staff Climate Notes are those of the author(s), although they do not necessarily represent the views of the IMF, or its Executive Board, or its management.
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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. Large disparities in carbon pricing between countries is raising concerns about competitiveness and emissions leakage, and BCAs are a potentially effective instrument for addressing such concerns. Design details are critical, however. For example, limiting coverage of the BCA to energy-intensive, trade-exposed industries facilitates administration, and initially benchmarking BCAs on domestic emissions intensities would help ease the transition for emissions-intensive trading partners. It is also important to consider how to apply BCAs across countries with different approaches to emissions mitigation. BCAs are challenging because they pose legal risks and may be at odds with the differentiated responsibilities of developing countries. Furthermore, BCAs provide only modest incentives for other large emitting countries to scale carbon pricing—an international carbon price floor would be far more effective in this regard.
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Cover Staff Climate Notes
Staff Climate Notes
Publisher:
International Monetary Fund