Carbon Border Adjustments, Climate Clubs, and Subsidy Races When Climate Policies Vary
Jurisdictions adopt heterogeneous climate policies that vary both in terms of ambition and in terms of policy approach, with some jurisdictions pricing carbon and others subsidizing clean production. We distinguish two types of policy spillovers associated with diverse policy approaches to climate change. First, when countries have different levels of climate ambition, free-riders will benefit at the expense of more committed countries. Second, when countries pursue different approaches, carbon-intensive producers within cost-imposing jurisdictions will be at a relative competitive disadvantage compared with producers in subsidizing jurisdictions. Carbon border adjustments and climate clubs are attempts to respond to these policy spillovers, but when countries have divergent policy approaches, one policy alone will not be able to address both types of spillovers. We also consider the policy dynamics that result from carbon border adjustments and climate clubs; both have the potential to encourage upward harmonization of climate policy, but they come with risks. Further, the pressures of international competition in the presence of divergent climate policy approaches may result in subsidy races, which come with their own potential risks and benefits.
-
-
Copy CitationKimberly A. Clausing and Catherine Wolfram, "Carbon Border Adjustments, Climate Clubs, and Subsidy Races When Climate Policies Vary," NBER Working Paper 31310 (2023), https://doi.org/10.3386/w31310.Download Citation
Published Versions
Kimberly A. Clausing & Catherine Wolfram, 2023. "Carbon Border Adjustments, Climate Clubs, and Subsidy Races When Climate Policies Vary," Journal of Economic Perspectives, vol 37(3), pages 137-162. citation courtesy of 
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
