Conference Agenda

Although agriculture is an important source of greenhouse gas emissions, the sector remains out of scope for greenhouse gas (GHG) pricing policies. To align the future food system with the transition to net zero emissions, two key questions arise: To what extent can tax policies help achieving this transition in a fair and effective way? And, would it be preferable to levy a GHG tax on the production or the consumption side? We employ an EU agro-economic model to compare production and consumption-side GHG taxes and to quantify their environmental impact. We find that supply-side pricing in agriculture displays leakage rates of over 40% and leaves EU producers in a situation of competitive disadvantage; on the other hand, demand-side measures level the playing field in the Single Market and generate positive leakage as they boost the export of (greener) EU producers. Focussing on four countries – Spain, France, Romania and Poland – we therefore consider a real-world reform based on adjusting Value-Added Taxes to reflect climate change externalities. Using microsimulation techniques and household-level data we show that - while this reform can generate reductions in emissions - is regressive without complementary measures. Feebate and equal-per-capita revenue recycling address equity concerns and produce welfare gains for the majority of the population, while the top 20-30% of meat consumers experiences welfare losses. Overall, findings suggest that price-based measures can help align agriculture with climate goals but trade and equity aspects should be reflected in policy design.

The aim of this paper is to analyze the domestic costs and international competitiveness effects of ambitious mitigation targets implemented by a club of abating countries facing groups of potential free riders. The club can adopt two alternative measures to even the playing field for its energy-intensive trade-exposed (EITE) sectors: a tax rebate to firms, and carbon border adjustment mechanisms (CBAMs). Different club configurations are considered. Initially they include the European Union only and then progressively expand to other member countries of the Organisation for Economic Cooperation and Development (OECD), China,

and India. We show that the club membership is much more influential than the use of border adjustments or rebates in determining the aggregated policy costs. However, both measures are effective at the sectoral level. We find that OECD countries’ firms would prefer protection by CBAMs, while China and India would

favor rebates. This depends on the size of the club when China and India join and on their role as sellers of emission reduction permits within the club. We also show that CBAMs and rebates can shift the policy burden to non-protected sectors with possible (though moderate) net efficiency losses.

We analyze a fundamental dilemma and time-inconsistency problem facing climate-concerned producers of natural gas. In the short term, it is tempting to produce more to outcompete coal. When this policy is anticipated, however, investments in renewables fall and emissions may ultimately increase. When the coalition cannot pre-commit, its policies can be counterproductive. A simulated version applied to Europe verifies that the gas trap is quantitatively important. We discuss the robustness of this result and possible solutions, ranging from direct investments in renewables to taxes on the search and exploration of gas.

This paper examines unilateral Carbon Border Adjustments (CBAs) in a two-country trade model with varying environmental damage parameters. It assesses the impacts of myopic and farsighted CBAs on global welfare and emissions, comparing them with a basic trade model with endogenous tariffs. The objectives are to: (i) investigate whether unilateral CBAs lead to environmental gains, overall welfare gains, or both; (ii) assess the potential of CBAs to encourage the convergence of environmental standards among heterogeneous countries; and (iii) evaluate the ability of CBAs to incentivize international cooperation, while considering the effects of environmental damage heterogeneity on the likelihood of cooperation.

Building upon the existing literature, this research explores various dimensions of unilateral carbon border adjustments, including their welfare implications, effectiveness in reducing global emissions, role in enforcing international environmental cooperation, and deviation from the traditional tariff-based approach. It also introduces a novel focus by examining their time sensitivity, distinguishing between farsighted and myopic CBAs, and considering the potential for retaliation in myopic CBAs.