From border carbon penalties to domestic action: can domestic carbon pricing provide a fairer solution to carbon leakage?

Amid the rapid reconfiguration of the global climate governance regime, border carbon adjustments (BCAs) are reshaping the international allocation of mitigation costs through trade and extraterritorial policy effects. Carbon charges based on embodied-emission estimates affect international competitiveness and may impose additional adjustment pressures on developing economies. Using a recursively updated multi-regional computable general equilibrium model based on the GTAP-E database, combined with input–output accounting to derive bilateral, sector-specific ad valorem trade shocks, this study evaluates the economic, environmental, and welfare effects of alternative carbon-pricing regimes, including unilateral border adjustments, coordinated domestic pricing, and cost-equity-based differentiated pricing. The results show that border-only measures achieve modest global emissions reductions while redistributing trade and welfare effects across economies, without uniformly benefiting all implementing countries. Uniform domestic pricing achieves the largest emissions reduction but also the greatest welfare loss, whereas differentiated pricing retains a substantial share of mitigation with lower welfare costs. China's domestic pricing response strengthens its mitigation relative to reliance on foreign border measures alone, although its global effects remain limited. These findings inform the comparative design of carbon-pricing policies and China's carbon-footprint governance.