with Harald Fadinger, Chiara Forlati, Sabine Stillger and Ulrich J. Wagner. July 2025. CEPR Discussion Paper 18645
Carbon leakage undermines the effectiveness of unilateral carbon pricing. Taxes on import-embedded emissions, like the EU’s CBAM, prevent leakage but their product coverage is limited due to strong information asymmetries. We propose an alternative policy (LBAM) that sterilizes carbon leakage without requiring information on foreign carbon intensities. In a quantitative trade model, LBAM tariffs significantly improve over the EU’s CBAM in terms of global emissions and EU welfare. Importantly, LBAM avoids large welfare losses among EU trading partners that would result if CBAM were extended to all sectors. Combining LBAM tariffs with equivalent export subsidies reinforces these advantages.
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Oil Price Shocks: Demand vs Supply in a Two-Country Model
Current version: September 2009. Previous version: MNB w.p. 2008/5, September 2008.