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Regional Trade Agreements, Emissions Bubbles, and Carbon Tariff Harmonization

In the context of sub-global participation in greenhouse gas mitigation efforts, this paper investigates the effectiveness of a Canada-U.S. emissions bubble under their existing regional trade agreement. It also explores the potential economic impact of carbon tariff harmonization through the implementation of a common Canada-U.S. external border tariff adjustment as a mean to address competitiveness issues. Using a multi-region, multi-sector computable general equilibrium model, the paper finds that the creation of an emission bubble between the two countries could improve efficiency. The findings also suggest that a carbon tariff harmonization policy could give rise to distributional issues among Annex I regions and could fail to mitigate the negative competitiveness impacts of carbon abatement policies.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q34 - Natural Resources and Domestic and International Conflicts
F44 - International Business Cycles

Keywords: Climate change, Emission trading, Competitiveness, Border tariff adjustment, CGE modeling

DOI: 10.5547/01956574.34.2.3

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Published in Volume 34, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.