Measures to enhance the effectiveness of international climate agreements: The case of border carbon adjustments

Alaa Al Khourdajie, Michael Finus

Research output: Contribution to journalArticle

Abstract

Actions on climate change which are not supported by all countries are not very effective. However, full participation in a global climate treaty with meaningful emission reductions is difficult to achieve. The non-excludability of the public good mitigation provides an incentive to abstain from global action. Moreover, carbon leakage renders it unattractive to join a treaty without full participation. We study whether and under which conditions border carbon adjustments (BCAs) can mitigate free-riding and reduce carbon leakage in a simple strategic trade model. We show that BCAs can lead to large stable climate agreements, including full participation, associated with large global welfare gains if treaties do not restrict membership (open membership), as this is typical for environmental agreements. We caution against restricting accession to treaties (exclusive membership), as this is typical for trade agreements, which may serve individual but not global interests.

Original languageEnglish
Article number103405
JournalEuropean Economic Review
Volume124
Early online date21 Feb 2020
DOIs
Publication statusPublished - 31 May 2020

Keywords

  • Border carbon adjustments
  • International trade
  • Self-enforcing international climate agreements

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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