Border Carbon Adjustments Based on Avoided Emissions: Addressing the Challenge of Its Design

Abstract

Carbon pricing is an essential instrument to address climate change. However international differences in carbon control policies may cause not only carbon leakage but also competitiveness disadvantages. In this context, border carbon adjustments are a promising tool for discouraging these problems. But designing a real-world border carbon adjustment instrument implies to consider significant issues: technical feasibility, data availability, the risk of retaliation from developing countries, and its compatibility within the World Trade Organization legal framework. ...