Carbon border levy
Levy per unit = (importing carbon price - foreign carbon price) x embodied emissions per unit
Whenever a question gives a carbon price and an emissions intensity. The foreign carbon price is credited, so an exporter that already pays the full price faces no levy. Then convert to an ad valorem equivalent by dividing by the product price.
- Importing carbon price
- Price per tonne of carbon dioxide paid by the importing country's own producers
- Foreign carbon price
- Carbon price already paid in the exporting country, per tonne of carbon dioxide
- Embodied emissions
- Tonnes of carbon dioxide per unit of the traded good
Ad valorem equivalent of any border charge
Ad valorem equivalent % = charge per unit / price per unit x 100
To compare a carbon levy, a compliance cost or a delay with the tariffs in the rest of the course. It is the only way to say whether a non-tariff measure is large or small.
- Charge per unit
- Money cost imposed on one unit of the good at the border
- Price per unit
- Price of the good, in the same currency
Gravity model response to a change in trade costs
New trade / old trade = old t / new t
For any TradeTech or compliance-cost question. Because trade is inversely proportional to t, divide the old index by the new one. A 20 per cent fall in t gives a 25 per cent rise in trade, not 20.
- t
- Bilateral trade costs, in index form
Combining two gravity effects
Combined factor = (old t / new t) x (1 + growth in Y)
When trade costs and economic mass both change. The gravity equation is a product, so proportional changes multiply: 1.25 x 1.10 = 1.375, a 37.5 per cent rise, not 35 per cent.
- t
- Bilateral trade costs
- Growth in Y
- Proportional change in the relevant country's economic mass, as a decimal
Regressivity of a fixed compliance cost
Burden % = fixed cost per consignment / consignment value x 100
For the inclusivity lens. Compute it for a large and a small consignment and quote the gap in percentage points: the same rule can be a 0.5 per cent tariff for one exporter and an 8 per cent tariff for another.
- Fixed cost
- Documentation, verification or compliance cost, independent of shipment size
- Consignment value
- Value of one shipment