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Can a Unilateral Carbon Tax Reduce Emissions Elsewhere?

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  • Joshua Elliott
  • Don Fullerton

Abstract

One country that tries to reduce greenhouse gas emissions may fear that other countries get a competitive advantage and increase emissions (“leakage”). Estimates from computable general equilibrium (CGE) models such as Elliott et al (2010a,b) indicate that 15% to 25% of abatement might be offset by leakage. Yet the Fullerton et al (2012) analytical general equilibrium model shows an offsetting term with negative leakage. To derive analytical expressions, their model is quite simple, with only one good from each country or sector, a fixed stock of capital, competitive markets, and many identical consumers that purchase both goods. Their model is not intended to be realistic, but only to demonstrate the potential for negative leakage. Most CGE models do not allow for negative leakage. In this paper, we use a full CGE model with many countries and many goods to measure effects in a way that allows for negative leakage. We vary elasticities of substitution and confirm the analytical model’s prediction that negative leakage depends on the ability of consumers to substitute into the untaxed good and the ability of firms to substitute from carbon emissions into labor or capital.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4113.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4113

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Keywords: carbon policy; trade; pollution haven;

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References

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  1. Golombek Rolf & Hoel Michael, 2004. "Unilateral Emission Reductions and Cross-Country Technology Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-27, September.
  2. Brian R. Copeland & M. Scott Taylor, 2000. "Free Trade and Global Warming: A Trade Theory View of the Kyoto Protocol," NBER Working Papers 7657, National Bureau of Economic Research, Inc.
  3. Corrado Di Maria & Edwin van der Werf, 2006. "Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change," Working Papers 2006.94, Fondazione Eni Enrico Mattei.
  4. Reyer Gerlagh & Onno Kuik, 2007. "Carbon Leakage with International Technology Spillovers," Working Papers 2007.33, Fondazione Eni Enrico Mattei.
  5. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2011. "Embodied Carbon Tariffs," NBER Working Papers 17376, National Bureau of Economic Research, Inc.
  6. Winchester Niven & Paltsev Sergey & Reilly John M, 2011. "Will Border Carbon Adjustments Work?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, January.
  7. Don Fullerton & Dan Karney & Kathy Baylis, 2011. "Negative Leakage," CESifo Working Paper Series 3379, CESifo Group Munich.
  8. Nicole Gürtzgen & Michael Rauscher, 2000. "Environmental Policy, Intra-Industry Trade and Transfrontier Pollution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(1), pages 59-71, September.
  9. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
  10. repec:old:wpaper:340 is not listed on IDEAS
  11. Di Maria Corrado & Smulders Sjak A., 2005. "Trade Pessimists vs Technology Optimists: Induced Technical Change and Pollution Havens," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-27, January.
  12. Swee Chua, 2003. "Does tighter environmental policy lead to a comparative advantage in less polluting goods?," Oxford Economic Papers, Oxford University Press, vol. 55(1), pages 25-35, January.
  13. Christoph Böhringer & Thomas Rutherford, 2002. "Carbon Abatement and International Spillovers," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(3), pages 391-417, July.
  14. Elliott Joshua & Foster Ian & Judd Kenneth & Moyer Elisabeth & Munson Todd, 2010. "CIM-EARTH: Framework and Case Study," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-34, December.
  15. Babiker, Mustafa H., 2005. "Climate change policy, market structure, and carbon leakage," Journal of International Economics, Elsevier, vol. 65(2), pages 421-445, March.
  16. Sergey V. Paltsev, 2001. "The Kyoto Protocol: Regional and Sectoral Contributions to the Carbon Leakage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 53-80.
  17. Joshua Elliott & Ian Foster & Samuel Kortum & Todd Munson & Fernando Pérez Cervantes & David Weisbach, 2010. "Trade and Carbon Taxes," American Economic Review, American Economic Association, vol. 100(2), pages 465-69, May.
  18. Meredith L. Fowlie, 2009. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 72-112, August.
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Cited by:
  1. Brock, William A. & Engström, Gustav & Grass, Dieter & Xepapadeas, Anastasios, 2013. "Energy balance climate models and general equilibrium optimal mitigation policies," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2371-2396.

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