Justice and cost effectiveness of consumption-based versus production-based approaches in the case of unilateral climate policies

In recent years, climate policy under the United Nations system has been characterized by bottom-up, national approaches to climate mitigation. This raises concerns about the overall effectiveness of these mitigation policies, for example due to carbon leakage. In response to these concerns, authors have repeatedly suggested that policy makers consider a consumption-based climate policy approach. We analyze the potential merits of a switch to a consumption-based policy approach using the criteria of justice and economic efficiency. We argue that emissions must be understood as being contributed by both, consumers and producers, but that this fact does not by itself settle the question whether consumption or production ought to serve as the climate policy base. Rather, the perspective of justice necessitates an analysis of the distributive consequences of switching from a production- to a consumption-based policy. We find that both (global) cost-effectiveness and justice can be improved if the unilateral climate policies of industrialized countries are based on emissions from consumption. There are preconditions, however, the switch in the policy base must be accompanied by clean technology transfer, and if implemented by border carbon adjustments, import tax revenues need to be channeled to developing and emerging economies. We further show that in such a setting, export rebates are of minor importance for efficiency and justice. (C) 2013 Elsevier Ltd. All rights reserved.