eprintid: 47424 rev_number: 21 eprint_status: archive userid: 1482 importid: 105 dir: disk0/00/04/74/24 datestamp: 2023-04-04 11:11:32 lastmod: 2024-03-08 10:51:04 status_changed: 2024-03-08 10:51:04 type: monograph metadata_visibility: no_search creators_name: Ambec, Stefan creators_name: Yang, Yuting creators_id: stefan.ambec@ut-capitole.fr creators_id: yutingyang@unm.edu creators_idrefppn: 131161431 creators_idrefppn: 249472252 creators_affiliation: Toulouse School of Economics; University of Toulouse;INRAE creators_affiliation: University of New Mexico creators_halaffid: 1002422 title: Climate policy with electricity trade ispublished: pub subjects: subjects_ECO abstract: Trade reduces the effectiveness of climate policies such as carbon pricing when domestic products are replaced by more carbon-intensive imports. We investigate the impact of unilateral carbon pricing on electricity generation in a country open to trade through interconnection lines. We characterize the energy mix with intermittent renewable sources of energy (wind or solar power). Electricity trade limits the penetration of renewables due to trade-induced competition. A carbon border adjustment mechanism (CBAM) removes this limit by increasing the cost of imported power, or by deterring imports. The CBAM must be complemented by a subsidy on renewables to increase renewable generation above domestic consumption. The interconnection line is then used to export power rather than importing it when renewables are producing. We also examine network pricing and investment into interconnection capacity. A higher carbon price increases interconnection investment which further reduces the effectiveness of carbon pricing. In contrast, when renewable electricity is exported, a higher subsidy on renewables reduces further carbon emissions by expanding interconnection capacity. date: 2023-10 date_type: published publisher: TSE Working Paper official_url: http://tse-fr.eu/pub/128018 faculty: tse divisions: tse keywords: Intermittent renewables keywords: electricity interconnection keywords: carbon pricing keywords: carbon border adjustment mechanism keywords: renewable subsidy keywords: carbon leakage language: en has_fulltext: TRUE subjectsJEL: JEL_D24 subjectsJEL: JEL_F18 subjectsJEL: JEL_H23 subjectsJEL: JEL_Q27 subjectsJEL: JEL_Q48 subjectsJEL: JEL_Q54 view_date_year: 2023 full_text_status: public monograph_type: working_paper series: TSE Working Paper volume: 23-1422 place_of_pub: Toulouse pages: 47 institution: Université Toulouse Capitole department: Toulouse School of Economics book_title: TSE Working Paper oai_identifier: oai:tse-fr.eu:128018 harvester_local_overwrite: pending harvester_local_overwrite: subjectsJEL harvester_local_overwrite: creators_idrefppn harvester_local_overwrite: creators_halaffid harvester_local_overwrite: creators_id harvester_local_overwrite: pages harvester_local_overwrite: date harvester_local_overwrite: department harvester_local_overwrite: place_of_pub harvester_local_overwrite: institution oai_lastmod: 2024-03-07T09:29:42Z oai_set: tse site: ut1 citation: Ambec, Stefan and Yang, Yuting (2023) Climate policy with electricity trade. TSE Working Paper, n. 23-1422, Toulouse document_url: https://publications.ut-capitole.fr/id/eprint/47424/1/wp_tse_1422.pdf