RIETI Report October 2021

Carbon tax, cross-border carbon leakage, and border tax adjustments

Dear Readers,
Welcome to RIETI Report.
This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world.

In this edition, we address issues related to carbon neutrality and climate actions.
We hope you will enjoy it. If you have any feedback, we would love to hear from you.
Editors of RIETI Report (Facebook: @en.RIETI / Twitter: @RIETIenglish / URL: https://www.rieti.go.jp/en/)

This month's featured article

Carbon tax, cross-border carbon leakage, and border tax adjustments

Haitao CHENGHitotsubashi University

ISHIKAWA JotaFaculty Fellow, RIETI

Global warming is one of the greatest concerns in the world. Global average temperatures increased by 0.85°C between 1880 and 2012. Rising global temperatures have been accompanied by changes in the climate causing extensive damage all over the world. As a countermeasure against global warming, carbon pricing has been attracting considerable attention. In particular, carbon taxes and carbon emissions trading are in the spotlight.

However, it is problematic that the various countries involved are not coordinating these countermeasures. A serious concern is cross-border carbon leakage, which undermines a country's attempt to cope with changes in its climate. That is, carbon pricing in one country decreases carbon emissions in that location but may increase carbon emissions in other countries. It is possible for the latter to dominate the former and for global emissions to increase as a result. Another concern is that carbon pricing results in cost disadvantages for domestic firms in both domestic and foreign markets, which may lead to cross-border carbon leakage.

To read the full text

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[List of discussion papers]

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