Global Warming and Border Carbon Adjustments

This study examines the welfare implications of border carbon adjustments (BCAs) in a globalized economy characterized by international trade and cross-border pollution (CBP). The model predicts that adopting BCAs is a weakly dominant strategy and global welfare is maximized when at least one country adopts BCAs in the presence of CBP, such as global warming. This is because adopting BCAs incentivizes other countries to tighten their environmental regulations without concerns such as the excessive shrinkage of domestic production and aggravation of CBP