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The Paris agreement can be seen as a first ambitious multilateral climate agreement post Kyoto. The aim of the convention is to cap global warming at +2◦C. However, each country's measures are chosen individually and voluntarily and there will be no mechanism to force a country to comply with its own “nationally determined contributions”. This bottom up approach builds on unilateral actions and yields some kind of carbon pricing, not necessarily identical across countries. As a consequence, these nationally determined climate policies have negative drawbacks in terms of carbon leakage and loss of competitiveness for firms producing in a more ambitiously regulating country. To restrict these negative effects, border adjustments (BAs) may be appropriate. Since there is a competitive disadvantage at home as well as abroad, BAs can either be imposed on imports or exports to supplement the existing domestic carbon pricing. In a game-theoretic model with imperfect competition, we look at the implications an import BA or a combination of im- and export BA has on domestic welfare and global emissions. We distinguish between Bertrand and Cournot competition and conclude that both BA types improve the competitiveness of domestic firms as well as the welfare of the unilaterally (or more ambitiously) regulating country independent of the underlying competition type.
