ABSTRACT
This chapter focuses on the modeling literature of border adjustments. The border tax was designed to offset the direct carbon costs only, meaning that emissions from electricity were not included. Border Tax Adjustments (BTA) is not a special trade measure for protecting domestic industries but a practice concerning any indirect tax on any commodities that ensures a level playing field for domestic and foreign commodities according to the 'destination principle'. The chapter analyzes the effects of BTA as an anti-carbon-leakage measure that, arguably, conforms to World Trade Organization (WTO) rules. The results of this analysis show that BTA effectively reduces the export prices of energy-intensive and trade-exposed (EITE) sectors through export rebates of the carbon tax, leading to higher export volumes. In order to fully 'neutralize' the negative impact of the carbon tax on EITE sectors, a sort of undesirable subsidy or regulation, which would deliberately maintain the position of the existing 'polluting industry', would be required.
