This policy brief summarizes the draft key messages of a larger report on designing border carbon adjustments (BCAs), instruments that address the problem of uneven climate efforts by including imports in, or exempting exports from, a carbon constraint. (The full report is to be published later in 2017.)
Based on a survey of academic literature and existing case studies, the authors suggest ways to design BCAs that can balance risks, costs, and benefits, and can keep in view legal vulnerability, administrative difficulty, and environmental performance.
With the entry into force of the Paris Agreement, climate cooperation has broadened and heterogeneity of domestic action has become an accepted feature. This means efforts remain asymmetrical across countries, raising concerns about competitiveness impacts and emissions “leakage”, in which some or all emissions reductions achieved by a country is offset by an increase in emissions elsewhere.
The authors argue that BCAs can level the competitive playing field, reduce emissions leakage, and incentivize trade partners to strengthen their own climate efforts. Economic modelling studies suggest that the effectiveness of BCAs in tackling leakage may vary from moderate to very high.
The policy brief is part of the Climate Strategies project, “Making the International Trading System Work for Climate Change”, funded by the KR Foundation.
Read the policy brief (external link to PDF):