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Impacts of emission reduction policies in a multi-regional multi-sectoral small open economy with endogenous growth

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  • BOUCEKKINE, Raouf

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • GERMAIN, Marc

Abstract

The burden sharing of pollution abatement costs raises the issue of how to share the costs between entities (country, region or industry) and how the pollution permits should be distributed between the parties involved. This paper explores this issue in the framework of a dynamic endogenous growth 2 sectors - 2 regions - 2 inputs Heckscher-Ohlin model of a small open multi-regional economy with an international tradable permits market. Given an "emission-based grand-fathering" sharing rule, capital accumulation is more negatively affected by the environmental policy in the energy intensive sector. We show that such a property does not necessarily hold with a "production-based grand-fathering" sharing rule. We also show that the impact on capital is likely to translate into the sectoral added value level after some time, specially if the economy is submitted to an increasingly constraining environmental policy driving up the ratio price of permits to price of energy. Finally, we show that the impact of environmental policy at the regional level depends crucially on the specialization of the region along the baseline.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007011.

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Date of creation: 01 Feb 2007
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Handle: RePEc:cor:louvco:2007011

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Keywords: pollution permits; grand-fathering; sectoral spillovers; multi- regional economy; endogenous growth;

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  1. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
  2. Andr� van Stel & Henry Nieuwenhuijsen, 2002. "Knowledge Spillovers and Economic Growth," Tinbergen Institute Discussion Papers 02-051/3, Tinbergen Institute.
  3. BOUCEKKINE, Raouf & DEL RIO, Fernando & LICANDRO, Omar, . "Embodied technological change, learning-by-doint and the productivity slowdown," CORE Discussion Papers RP -1629, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Smolny, Werner, 1999. "International Sectoral Spillovers: An Empirical Analysis for German and U.S. Industries," Journal of Macroeconomics, Elsevier, vol. 21(1), pages 135-154, January.
  5. Malerba Franco & Mancusi Maria Luisa & Montobbio Fabio, 2003. "Innovation and Knowledge Spillovers: Evidence from European Data," Economics and Quantitative Methods qf0319, Department of Economics, University of Insubria.
  6. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  7. Arjan Lejour & Richard Nahuis, 2005. "R&D Spillovers and Growth: Specialization Matters," Review of International Economics, Wiley Blackwell, vol. 13(5), pages 927-944, November.
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