Effects of asymmetric policies to achieve emissions reduction on energy trade: A North American perspective

Abstract

The implementation of asymmetric emission reduction policies can not only increase the cost of reducing emissions but also reduce the effectiveness of climate policies themselves, leading to policy inefficiencies such as carbon leakage. This paper investigates the impact of asymmetric emission reduction policies on the cost-effectiveness and efficiency of climate strategies in North America. Using a model inter-comparison approach, which combines two bottom-up global models and one top-down global model, this study assesses the effects of such policies on fuel substitution, global fossil fuel trade, and emissions in North America and globally. It is the first work where a multi-model approach is used for exploring how different energy systems react to asymmetric carbon policies. This provides critical insights into regional policy design within a global emissions framework. Quantitatively, the study reveals that asymmetric carbon pricing can lead to more than 60% global emissions reduction in certain models, but can also drive trade distortions, where U.S. exemptions result in emissions rising by more than 10% compared to reference scenarios. Qualitatively, significant fuel substitution patterns across Canada, Mexico, and the U.S. demonstrate increased coal consumption when carbon prices are unevenly applied. While no global emission increase was observed, asymmetric policies result in inefficiencies between local policy costs and emissions reduction outcomes, such as rising fossil fuel trade in non-abating regions. The findings suggest that harmonising carbon policies across regions would reduce inefficiencies and minimise carbon leakage.