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On the strategic use of border tax adjustments as a second-best climate policy measure

Published online by Cambridge University Press:  17 June 2014

Charles F. Mason ,
Edward B. Barbier  and
Victoria I. Umanskaya
Charles F. Mason
Affiliation:
Department of Economics & Finance, University of Wyoming, Laramie, WY 82071, USA. Tel: +1-307-766-2178. Fax: +1-307-766-5090. E-mail: bambuzlr@uwyo.edu
Edward B. Barbier
Affiliation:
Department of Economics & Finance, University of Wyoming, Laramie, WY 82071, USA. E-mail: ebarbier@uwyo.edu
Victoria I. Umanskaya
Affiliation:
Department of Economics, Occidental College, Los Angeles, CA 90041, USA. E-mail: v.umanskaya@gmail.com
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Abstract

We investigate the interaction between a developed country that imports a carbon-intensive product, such as electricity, and a transitioning economy that exports the product. Production of the good generates a transboundary externality related to climate change; if this externality is priced improperly, the application of a feed-in tariff or border tax adjustment can provide an indirect policy instrument. We analyze the application of such a measure in a stark model where the importing country cares about climate-related damages while the exporting country does not; this can be viewed as reflecting a scenario where the (developed) importing country is more concerned about climate change than is the (transitioning) exporting economy. Because climate change will occur over a long time frame, the problem is dynamic. In this modeling context, we describe the manner in which the (second-best) tariff-cum-border tax adjustment relates to the carbon stock.

Type
Research Article
Information
Environment and Development Economics , Volume 20 , Special Issue 4: Climate Change Mitigation and Adaptation in Developing and Transition Countries , August 2015 , pp. 539 - 560
Copyright
Copyright © Cambridge University Press 2014 

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