Addressing the inequality issue under border carbon adjustment

Border carbon adjustment (BCA) aims to address the competitiveness and carbon leakage concerns caused by the asymmetric requirements for developed and developing countries regarding their domestic mitigation under the Kyoto Protocol. In this chapter, we argue that although BCA measures level up the playing field of foreign producers to the same level as domestic producers, these measures cause another form of inequity in favour of the BCA-implementing countries because they charge the carbon costs of imports but do not issue corresponding emission credits to offset the emissions from the exporting countries. We propose a solution and use a multi-region computable general equilibrium (CGE) analysis to support our proposal.