Effects of carbon-based border tax adjustments on carbon leakage and competitiveness in livestock sectors

Given the likely absence of a “top-down” global agreement after the 2012 expiry of the Kyoto Protocol, many countries (or groups of countries) may only be prepared to introduce a price on GHG emissions if they can maintain the competitiveness of their domestic sectors and prevent leakage effects associated with the expansion of unregulated sectors in other countries. One means of achieving this is through border tax adjustments (BTAs). Most of the studies to date have focused on BTAs in the context of CO2 combustion emissions from manufacturing sectors. Agricultural sectors, on the other hand, account for a large share of the hitherto underemphasized non-CO2 emissions. By drawing on recent research into non- CO2 emissions and abatement possibilities in the global agriculture and livestock sectors, this paper seeks to complement and extend the existing literature on BTAs. To do this, the paper uses the global computable general equilibrium model GTAP-AEZ-GHG. The analysis shows that BTAs are helpful in controlling loss of competitiveness and emissions leakage in livestock sectors. The study also assesses effect of BTAs on emissions leakage in other sectors and relationship between effectiveness of BTAs and coalition size.