Can Consumer Responsibility Help Address Carbon Leakage Concerns? An Analysis of Participation vs. Non-Participation in a Global Mitigation Regime

Competitiveness and carbon leakage are two central concerns in the international negotiations of a future climate policy. With more attentions given to border adjustment measures to address these concerns, it is rational to consider consumption-based national inventory to account for emissions embodied in international trade. In this work, we examine the impacts of a change in the national emissions accounting principle from producer responsibility to consumer responsibility on the national welfare, international trade, competitiveness and carbon leakage. By applying linear programming to a multi-region input-output model, we established a numerical model to analyse participation and non-participation in a global mitigation regime. Preliminary results indicate that without full participation of parties in a global mitigation regime, the international competitiveness and national welfare of the participation country will be influenced negatively, however with an emissions trading system in place, these disadvantages will be alleviated substantially. A change from producer responsibility to consumer responsibility may have potential impacts on exports and domestic reductions in the participation country and may serve as an effective measure to restrain the trend of carbon leakage.