Guo, B. and Newbery, D.
The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade
CWPE2014
Abstract: Note - The change in title and this paper replaces CWPE1951.
Carbon taxes create global benefits unless offset by increased emissions elsewhere. An additional carbon tax in one country may cause leakage through imports and will also increase costs by creating a wedge between economic marginal costs in different markets, causing an offsetting deadweight loss. We estimate the global benefit, carbon leakage and deadweight cost of the British Carbon Price Support (CPS) on GB’s cross-border electricity trade with France and The Netherlands. Over 2015-2020 the unilateral CPS created €72±20 m/yr deadweight loss, about 31% of the initial economic value created by the interconnector, or 2.5% of the global emissions benefit of the CPS at €2.9±0.1 bn/yr. About 16.3±3.5% of the CO2 emissions reduction is undone by France and The Netherlands, the monetary loss of which is about €584±127 m/yr.
Keywords: Carbon tax, Bilateral trading, Carbon leakage, Electricity market
JEL Codes: Q48 F14 D61 C13
Author links:
PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2014.pdf 
EPRG Paper Link: 2005
Open Access Link: https://doi.org/10.17863/CAM.79760
