Conference Agenda

Context: Reducing food system greenhouse gas (GHG) emissions has been increasingly recognized as necessary for achieving net zero goals. However, countries considering policy measures directed at agricultural production are confronted with the risk of carbon leakages.

Objective: This study explores how a food consumption-based GHG tax can realize sizable global GHG reductions while causing only minor demand and production reallocations across countries in a set of scenarios where increasing numbers of countries apply the GHG tax at differentiated rates.

Methods: Our methodology couples three models: a disaggregated demand system parameterized with meta-elasticities, a Computable General Equilibrium (CGE) model, and a Comparative Risk Assessment (CRA) model. This allows us to capture cross-product substitution effects arising from the GHG tax, within- and cross-country demand and production reallocation effects, and the associated GHG emissions and health outcomes.

Results and conclusions: We find that a uniform GHG tax leads to the highest GHG mitigation potential (4.9% of global GHG emissions) but also results in negative health implications in some countries. In contrast, differentiated GHG taxes reflecting the common but differentiated responsibility lower global mitigation potential slightly (4.4%) but reduce the negative health effects in more vulnerable countries. Recycling the tax revenue to subsidize fruits and vegetables consumption improves health outcomes significantly but also lowers the mitigation potential (3.6%). In this setting, a more ambitious GHG tax can lead to more GHG reductions and significantly better health outcomes, so long as the tax does not significantly reduce food purchasing power.

This paper explores the impacts of carbon pricing on the international competitiveness of manufacturing sectors. A simple theoretical framework is developed to explore the linkage between carbon pricing and market share of imported goods that potentially lead to carbon leakage. We examine direct and indirect impacts, to consider a shift from domestic to foreign inputs for producing output goods. Using the EU ETS as an empirical setting, we estimate the effects of carbon pricing on import and total values in targeted and non-targeted sectors. The analysis of bilateral trade flow reveal that unilateral carbon pricing slightly weaken the competitiveness of importing country in the markets of targeted sectors that might lead to a higher risk of carbon leakage. In contrast, the policy does not affect the competitiveness in those of non-targeted sectors. Obtained results suggest that unilateral carbon pricing has a direct influence on targeted sectors, but there are no evidence implying spillover effects on non-targeted sectors.

The European Union (EU) is implementing a Carbon Border Adjustment Mechanism (CBAM) at its borders, which will require exporters of basic materials to surrender emission permits when exporting to the EU market. Since it makes foreign producers compete under a carbon price, the EU CBAM may motivate some trade partners to implement their own carbon pricing mechanisms, thereby encouraging the creation of a coalition of countries with ambitious carbon pricing policies protected by a joint CBAM. Here, we present a modelling framework to simulate the potential of CBAMs to motivate the creation of climate coalitions. We use a fully interlinked New Quantitative Trade model to evaluate the pay-offs of a dynamic club negotiation model. Compared to previous research, our approach allows for a more granular definition of climate policies and requires relatively little input data and numerical power. This allows us to explore the formation and stability of climate coalitions under a broader range of CBAM implementation options. Our results highlight that the potential of a CBAM-based climate coalition strongly depends on the exact CBAM design. In its current version, the EU CBAM would only trigger the formation of a modest coalition. Future extensions of the EU CBAM could motivate the adoption of carbon pricing in all countries except China, India and Russia. Meanwhile, export rebates shrink its coalition-building potential.

Carbon prices differ quite substantially, not only between countries but also within. In this paper we investigate whether this can be (partly) defended by reduced carbon leakage to other countries. We do this in two steps. First, our descriptive analysis for the years 2010, 2015 and 2021 suggests that there has been a positive correlation at the sector level in Europe between carbon price levels and our measure of leakage exposure. Second, using a multi-region and multi-sector computable general equilibrium (CGE) model, we examine whether a shift from historically heterogeneous carbon prices towards uniform carbon prices in the EU would have led to higher or lower leakage. We calibrate our model to a detailed dataset (GLORIA) for each of the years 2013-2021, and simulate the model with different carbon price scenarios, taking into account that most firms regulated by the EU Emissions Trading System have received a large number of (output-based) free allowances. Our results suggest that whereas a shift towards uniform carbon pricing would have increased leakage in the early years, leakage would have decreased in later years when carbon prices on average were much higher. Hence, in these later years, uniformization of carbon prices would not only have improved cost-effectiveness but also reduced leakage.

This study explores early signals of the potential impacts of the EU's Carbon Border Adjustment Mechanism (CBAM). Focusing on India's iron and steel sector, it examines trade flows at both the EU member state and company levels. Firm-level panel data on exports is integrated with third-party estimates of steel manufacturers' emissions and production activities, allowing an assessment of potential exposure to the CBAM when it comes into full force. Empirical results reveal that statistically significant changes in firms' supply chains can already be observed in the reporting phase. Specifically, high-emission-intensity firms have reduced both unit prices and volumes of goods sent to the EU since the implementation of the CBAM disclosure procedure, while low-intensity firms have not. The analysis also identifies EU member states most exposed to emissions embedded in imported goods from this sector. Despite the policy's early stages, the research offers novel insights for analyzing the complex implications of a fully implemented CBAM.

Greenhouse Gases (GHG) and air pollutants share “common origin and source” as fossil fuel combustion. Reducing carbon emission can simultaneously reduce pollutant emissions, which is known as the environmental co-benefit of climate mitigation. However, the co-benefit is neither granted nor balanced on regional level, especially with carbon market. The trading mechanism of carbon market transfers carbon emission across regions, coupled with corresponding pollutant transfer, and can result in undesired and unbalanced regional environmental impacts. Fragmented regulation of pollutant emissions undermines the economic efficiency of the carbon market, since the two types of emissions are actually interlinked.

This paper shows that the two can be endogenously synergized. By rewarding emitters’ pollutant reduction with carbon quota or allowing offsetting carbon emission with pollution reduction credits, we can optimize pollution reduction incentives without compromising the cost-effectiveness of the carbon market. We prove it with a partial equilibrium model, and verify its validity in a complete economic representation with a general equilibrium model and real data of China. Furthermore, considering the incomplete information for policymakers, we propose a dynamic adjusting procedure, based on observable market variables, to approach the correct policy setting iteratively.

This study provides a reference for optimizing carbon market design, contributes to improving the environmental co-benefits of climate mitigation, and is beneficiary for encouraging developing countries to participate in global climate governance more actively.