CO2 emissions embodied in EU-China trade and carbon border tax

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Title: CO2 emissions embodied in EU-China trade and carbon border tax
Author: Simola, Heli
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Policy Brief
Series number: 4/2020
Year of publication: 2020
Publication date: 22.1.2020
Pages: 19
Subject (yso): ulkomaankauppa; verotus; päästöt; tariffit
Keywords: Bofit-kokoelma; Kiina; CO2
Other keywords: CO2 emissions; international trade; border adjustment; EU; China; input-output
Abstract: In this note, we provide a brief description of the CO2 emissions embodied in global trade flows with an emphasis on the EU’s external trade with China. Our analysis suggests that imported emissions account for an increasing share of CO2 emissions associated with consumption within the EU. The CO2 emissions embodied in EU imports mainly originate from emerging economies, particularly China. We also discuss possible effects from the introduction an EU border adjustment mechanism that would impose tariffs on CO2 embodied in imports to the EU. Our results suggest that a potential border adjustment mechanism would likely affect EU trade with China, the largest source of CO2 imports to the EU. The effects would probably be felt more in imports of inputs for production chains located in the EU than in final products consumed in the EU.
Table of contents: Abstract .. 3 1. Introduction .. 4 2. Brief description of global carbon emission trends .. 4 3. CO2 emissions and CO2 embodied in EU imports .. 7 4. Embodied CO2 emissions in EU imports from China .. 8 4.1 Imports of final products from China .. 8 4.2 Imports of inputs from China .. 9 5. Illustrating the potential effects of an EU border adjustment mechanism .. 10 5.1 Carbon leakage and border adjustment mechanism .. 10 5.2 Cost effects of tariffs on CO2 embodied in EU imports .. 11 6. Discussion .. 12 References .. 14 Appendix. List of sectors and subsectors deemed at risk for carbon leakage in the EU for 2021–30 .. 16

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