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Addressing climate change through unilateral action: The implications of adopting a European Union-wide Border Carbon Adjustment

Kareckaite, Egle LU (2020) In Master Thesis Series in Environmental Studies and Sustainability Science MESM02 20201
LUCSUS (Lund University Centre for Sustainability Studies)
Abstract
In the European Union’s (EU) Emissions Trading Scheme (ETS), free allocation of emissions allowances to avoid carbon leakage has resulted in a distorted pricing signal and a failure to reduce emissions in the most polluting industries. A Border Carbon Adjustment (BCA), a mechanism which would apply a tariff to imported goods based on their embedded carbon content, has been suggested as a solution. Various concerns have been raised regarding the potential EU-wide BCA, including its questionable compatibility with trade law, limited effectiveness in reducing carbon leakage and the tendency to shift the burden of climate change mitigation from industrialised to developing countries. In this thesis, I undertake a systematic literature review... (More)
In the European Union’s (EU) Emissions Trading Scheme (ETS), free allocation of emissions allowances to avoid carbon leakage has resulted in a distorted pricing signal and a failure to reduce emissions in the most polluting industries. A Border Carbon Adjustment (BCA), a mechanism which would apply a tariff to imported goods based on their embedded carbon content, has been suggested as a solution. Various concerns have been raised regarding the potential EU-wide BCA, including its questionable compatibility with trade law, limited effectiveness in reducing carbon leakage and the tendency to shift the burden of climate change mitigation from industrialised to developing countries. In this thesis, I undertake a systematic literature review to identify the implications of adopting an EU-wide BCA. The findings are evaluated against three criteria: feasibility, effectiveness, and fairness. Regarding feasibility, the analysis finds that while it is theoretically possible to design a BCA compatible with the World Trade Organisation (WTO) rules, it is still likely to get challenged by at least some of the EU’s trade partners. Regarding effectiveness, a BCA has the capacity to reduce carbon leakage, but cannot eliminate it if introduced unilaterally by the EU. Regarding fairness, a BCA is found to shift the burden of climate change mitigation towards developing countries. The negative distributional impact of the BCA can be mitigated by using the revenue to fund climate change and clean technology initiatives in developing countries. Overall, the findings raise questions regarding the trade-offs between the BCA’s feasibility, effectiveness and fairness as well as the possibility of designing truly effective market mechanisms under the existing WTO rules. (Less)
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author
Kareckaite, Egle LU
supervisor
organization
course
MESM02 20201
year
type
H2 - Master's Degree (Two Years)
subject
keywords
carbon border tax, carbon leakage, carbon pricing, World Trade Organisation, common but differentiated responsibilities, market mechanism
publication/series
Master Thesis Series in Environmental Studies and Sustainability Science
report number
2020:031
language
English
id
9012961
date added to LUP
2020-06-08 11:44:27
date last changed
2020-06-08 11:44:27
@misc{9012961,
  abstract     = {{In the European Union’s (EU) Emissions Trading Scheme (ETS), free allocation of emissions allowances to avoid carbon leakage has resulted in a distorted pricing signal and a failure to reduce emissions in the most polluting industries. A Border Carbon Adjustment (BCA), a mechanism which would apply a tariff to imported goods based on their embedded carbon content, has been suggested as a solution. Various concerns have been raised regarding the potential EU-wide BCA, including its questionable compatibility with trade law, limited effectiveness in reducing carbon leakage and the tendency to shift the burden of climate change mitigation from industrialised to developing countries. In this thesis, I undertake a systematic literature review to identify the implications of adopting an EU-wide BCA. The findings are evaluated against three criteria: feasibility, effectiveness, and fairness. Regarding feasibility, the analysis finds that while it is theoretically possible to design a BCA compatible with the World Trade Organisation (WTO) rules, it is still likely to get challenged by at least some of the EU’s trade partners. Regarding effectiveness, a BCA has the capacity to reduce carbon leakage, but cannot eliminate it if introduced unilaterally by the EU. Regarding fairness, a BCA is found to shift the burden of climate change mitigation towards developing countries. The negative distributional impact of the BCA can be mitigated by using the revenue to fund climate change and clean technology initiatives in developing countries. Overall, the findings raise questions regarding the trade-offs between the BCA’s feasibility, effectiveness and fairness as well as the possibility of designing truly effective market mechanisms under the existing WTO rules.}},
  author       = {{Kareckaite, Egle}},
  language     = {{eng}},
  note         = {{Student Paper}},
  series       = {{Master Thesis Series in Environmental Studies and Sustainability Science}},
  title        = {{Addressing climate change through unilateral action: The implications of adopting a European Union-wide Border Carbon Adjustment}},
  year         = {{2020}},
}