On the Design of a Carbon Border Adjustment Mechanism 1

Welfare-optimal policy response to border carbon adjustments: An emerging economy perspective

We develop a Melitz-style model of asymmetric countries to analyse how a trading partner's border carbon adjustment affects the welfare costs of raising a domestic carbon price in the exposed country. By examining how a unilateral increase in emissions taxes affects endogenous productivity cut-offs, we show that a bord...

Carbon Border Adjustment and Strategic Environmental Quality: Quality Backfire and Market Contraction

We develop a two-stage game with vertically differentiated products and endogenous environmental quality to study unilateral carbon pricing and the Carbon Border Adjustment Mechanism (CBAM). A home EU firm and a foreign exporter choose environmental quality, then compete in prices. Under unilateral pricing, only the ho...

Carbon Taxation in a Second‐Best Setting: Impacts of Sectoral Differences on Optimal Rates

This paper investigates the Ramsey‐optimal fiscal and environmental policy in an economy with two differentiated final‐goods sectors: brown (pollutive) and green (zero emissions). This analysis provides new insights into the interaction between distortionary taxes and carbon taxes in both the short run and long run....

Business Administration Building Climate Coalitions on Preferential Free Trade Agreements

A global carbon tax? Why firm mobility and heterogeneity matters

preliminary materials circulated to stimulate