Repository logo

The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade


Working Paper

Change log


Guo, B. 
Newbery, D. 


Note - The change in title and this paper replaces CWPE1951.
Carbon taxes create global benefits unless offset by increased emissions elsewhere. An additional carbon tax in one country may cause leakage through imports and will also increase costs by creating a wedge between economic marginal costs in different markets, causing an offsetting deadweight loss. We estimate the global benefit, carbon leakage and deadweight cost of the British Carbon Price Support (CPS) on GB’s cross-border electricity trade with France and The Netherlands. Over 2015-2020 the unilateral CPS created €72±20 m/yr deadweight loss, about 31% of the initial economic value created by the interconnector, or 2.5% of the global emissions benefit of the CPS at €2.9±0.1 bn/yr. About 16.3±3.5% of the CO2 emissions reduction is undone by France and The Netherlands, the monetary loss of which is about €584±127 m/yr.



Carbon tax, Bilateral trading, Carbon leakage, Electricity market

Is Part Of


Faculty of Economics, University of Cambridge

Publisher DOI

Publisher URL

Is new version of: