Carbon Pricing: What Role for Border Carbon Adjustments?

By Ian W.H. Parry, Peter Dohlman, Cory Hillier, Martin D Kaufman, Florian Misch, James Roaf, Christophe J Waerzeggers, Miss Kyung Kwak

September 27, 2021

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Ian W.H. Parry, Peter Dohlman, Cory Hillier, Martin D Kaufman, Florian Misch, James Roaf, Christophe J Waerzeggers, and Miss Kyung Kwak. Carbon Pricing: What Role for Border Carbon Adjustments?, (USA: International Monetary Fund, 2021) accessed November 17, 2024

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. 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.

Subject: Climate change, Environment, Export subsidies, Greenhouse gas emissions, Imports, International trade

Keywords: Allowance allocation, BCA to energy-intensive, Border carbon adjustment, Border carbon adjustments, Carbon pricing, Climate change, Climate mitigation, Competitiveness, Design issues, Emissions leakage, Export subsidies, Global, Greenhouse gas emissions, IMF staff climate note, Imports, World Trade Organization rules

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Staff Climate Note No 2021/004
Stock No:

CLNEA2021004
ISBN:

9781513594545
ISSN:

2789-0600

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