What Can Undermine a Carbon Tax?

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:Provides robust empirical evidence of carbon leakage via import substitution, relevant for modeling carbon pricing effectiveness.

🏢実務担当者:Illustrates how firms may shift supply chains to avoid carbon costs, informing risk assessments and procurement strategies.

🏛政策担当者:Offers clear evidence that carbon pricing alone can cause leakage, reinforcing the case for complementary border measures like CBAM.

Several countries have implemented a carbon tax or cap-and-trade system to establish high carbon prices and create a disincentive for the use of fossil fuels. Essentially, the tax encourages firms to substitute toward low carbon emission energy. Costs also rise for firms down the supply chain that use production inputs with high-emission content, so the total impact of a carbon tax can be large. In practice, however, firms also have an incentive to find an offset to a carbon tax. In this post, based on our recent work, we present evidence of one such adaptation strategy. We show that French firms increased their imports of high-emission inputs from suppliers outside the European Union’s cap-and-trade system, known as the EU Emissions Trading System (EU ETS), reducing the effectiveness of this approach to cutting carbon emissions—an adaptation strategy that leads to “carbon leakage.” To help stop this leakage, the EU is implementing a “carbon tariff” in 2026, which is the topic of a companion post.

• semanticscholar https://doi.org/10.59576/lse.20260107afirst seen 2026-05-15 17:08:17