One of the obvious problems with implementing a carbon tax is that there would be “leakage”—meaning that CO2-intensive industries would have an incentive to migrate out of taxed jurisdictions into untaxed ones. In a previous post I discussed the issue of leakage directly, but in this post I want to highlight a new Resources for the Future (RFF) study that shows the problems with an alleged solution to leakage—namely, taxing goods at the border coming from unregulated jurisdictions. The RFF authors are not opposed to carbon taxes in principle, or even to the use of “border adjustments” to combat leakage, but they demonstrate that economists have not yet made a convincing case that this is indeed a solution.
