European Journal of Law and Economics

, Volume 24, Issue 2, pp 137–164

Border tax adjustment: a feasible way to support stringent emission trading

Article

DOI: 10.1007/s10657-007-9032-8

Cite this article as:
Ismer, R. & Neuhoff, K. Eur J Law Econ (2007) 24: 137. doi:10.1007/s10657-007-9032-8

Abstract

CO2 emission allowances help to internalise effects of fossil fuel consumption on global climate and sea levels. However, consumption, production and investment decisions do not reach the optimal allocation when the scheme is only implemented in some countries. Production with inefficient facilities in non-participating countries may even increase. Border tax adjustment (BTA) for costs incurred from procuring CO2 emission allowances reduces the leakage. We show that BTA can be both feasible and compatible with World Trade Organization (WTO) constraints. Practicable implementability requires a focus on CO2 emissions from certain processed materials and a separate treatment of electric energy input.

Keywords

Border taxEmission tradingWTO lawInternational trade

JEL classification

K32K33F18H23

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Law FacultyLudwig-Maximilians-Universität MünchenMünchenGermany
  2. 2.Faculty of EconomicsUniversity of CambridgeCambridgeUK