Title page
STAFF CLIMATE NOTES
Carbon Pricing
What Role for Border Carbon Adjustments?
Ian Parry, Peter Dohlman, Cory Hillier, Martin Kaufman, Kyung Kwak, Florian Misch, James Roaf, and Christophe Waerzeggers
IMF STAFF CLIMATE NOTE 2021/004
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©2021 International Monetary Fund
Carbon Pricing: What Role for Border Carbon Adjustments?
IMF Staff Climate Note 2021/004
Ian Parry, Peter Dohlman, Cory Hillier, Martin Kaufman, Kyung Kwak, Florian Misch,
James Roaf, and Christophe Waerzeggers*
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.
RECOMMENDED CITATION: Parry, Ian, Peter Dohlman, Cory Hillier, Martin Kaufman, Kyung Kwak, Florian Misch, James Roaf, and Christophe Waerzeggers. 2021. “Carbon Pricing: What Role for Border Carbon Adjustments?” IMF Staff Climate Note 2021/004, International Monetary Fund, Washington, DC.
| ISBN: | 978-1-51359-454-5 (Paper) 978-1-51359-460-6 (ePub) 978-1-51359-465-1 (PDF) |
| JEL Classification Numbers: | Q31, Q35, Q38, Q48, H23 |
| Keywords: | Border carbon adjustment, climate mitigation, carbon pricing, competitiveness, emissions leakage, allowance allocation, design issues, World Trade Organization rules. |
| Authors’ email addresses: | iparry@imf.org; pdohlman@imf.org; chillier@imf.org; mkaufman@imf.org; kkwak@imf.org; fmisch@imf.org; jroaf@imf.org; cwaerzeggers@imf.org |
| ISBN: | 978-1-51359-454-5 (Paper) 978-1-51359-460-6 (ePub) 978-1-51359-465-1 (PDF) |
| JEL Classification Numbers: | Q31, Q35, Q38, Q48, H23 |
| Keywords: | Border carbon adjustment, climate mitigation, carbon pricing, competitiveness, emissions leakage, allowance allocation, design issues, World Trade Organization rules. |
| Authors’ email addresses: | iparry@imf.org; pdohlman@imf.org; chillier@imf.org; mkaufman@imf.org; kkwak@imf.org; fmisch@imf.org; jroaf@imf.org; cwaerzeggers@imf.org |
Carbon Pricing: What Role for Border Carbon Adjustments?
Ian Parry, Peter Dohlman, Cory Hillier, Martin Kaufman, Kyung Kwak, Florian Misch, James Roaf, and Christophe Waerzeggers September 2021
Abstract
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.