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Cross-Border Impacts of Climate Policy Packages in North America
Author:
Jean-Marc Fournier https://isni.org/isni/0000000404811396 International Monetary Fund

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Tannous Kass-Hanna
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Liam Masterson
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Anne-Charlotte Paret https://isni.org/isni/0000000404811396 International Monetary Fund

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Sneha D Thube
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Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 068
Language:
English
Publication Date:
22 Mar 2024
DOI:
https://doi.org/10.5089/9798400268960.001
ISBN:
9798400268960
ISSN:
1018-5941
Pages:
49
Keywords:
Climate Policy; Climate Change Policy; Nationally Determined Contributions (NDCs); Mitigation; Climate subsidies; Carbon Tax; Carbon pricing; Spillovers; North America; Global; IMF-ENV model; Computable General Equilibrium (CGE) models; Competitiveness; Greenhouse Gas Emissions (GHG); Revenue Recycling; Inflation Reduction Act (IRA); Power; Electricity; climate policy package; mitigation policy; green subsidy; Canada's Carbon pricing policy; divergent policy
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We quantify cross-border effects of the recent climate mitigation policies introduced in Canada and the U.S., using the global general equilibrium model IMF-ENV. Notably, with the substantial emission reductions from Canada’s carbon tax-led mitigation policies and the U.S.’ Inflation Reduction Act, these two countries would bridge two-thirds of the gap toward their Nationally Determined Contribution (NDC) goals. While the broadly divergent policies are believed to elicit competitiveness concerns, we find the aggregate cross-border effects within North America to be very limited and restricted to the energy intensive and trade exposed industries. Potential carbon leakages are also found to be negligible. A more meaningful difference triggered by policy heterogeneity is rather domestic, especially with U.S. subsidies increasing energy output while the Canada model with a carbon tax would marginally decrease it. This analysis is complemented by a stylized model illustrating how such divergence can affect the terms of trade, but also how these effects can be countered by exchange rate flexibility, border adjustments or domestic taxation.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund