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Carbon leakage in a small open economy: The importance of international climate policies

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  • Beck, Ulrik R.
  • Kruse-Andersen, Peter K.
  • Stewart, Louis B.

Abstract

A substantial literature investigates carbon leakage effects for large countries and climate coalitions. However, little is known about leakage effects for a small open economy within a climate coalition. To fill this gap in the literature, we incorporate international climate policies relevant for a small open EU economy into the general equilibrium model GTAP-E. We focus our analysis on Denmark, but we show that our framework can be applied to any EU economy. We find substantial leakage associated with an economy-wide CO2e tax. This result is strongly affected by EU climate policies. We also present sector-specific leakage rates and find large sectoral differences.

Suggested Citation

  • Beck, Ulrik R. & Kruse-Andersen, Peter K. & Stewart, Louis B., 2023. "Carbon leakage in a small open economy: The importance of international climate policies," Energy Economics, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:eneeco:v:117:y:2023:i:c:s014098832200576x
    DOI: 10.1016/j.eneco.2022.106447
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    More about this item

    Keywords

    Carbon leakage; Trade and the environment; Climate policy; Computable general equilibrium;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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