Fossil Fuel Supply, Leakage and the Effectiveness of Border Measures in Climate Policy
AbstractUnderstanding fossil fuel supply behaviour is crucial for interpreting carbon leakage and assessing the potential effectiveness of border measures in climate policy. In most computable general equilibrium models, this fossil fuel supply is derived from a constant elasticity of substitution production function, in which a natural resource is treated as a fixed factor. We show that this leads to endogenously decreasing supply elasticities and sharply increasing marginal leakage rates for large coalitions that have ambitious emissions targets, particularly when fuel exporters participate in the coalition. We propose an alternative production function that has a constant elasticity of fuel supply, which results in more stable leakage rates and a different share of trade-related leakage. The role of this model variation for the assessment of border measures in climate policy turns out to be limited. In those cases where the model versions differ most (i.e. large coalition, ambitious targets), border measures have a small effect anyway.
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Bibliographic InfoPaper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 215.
Date of creation: Jul 2012
Date of revision:
Other versions of this item:
- Boeters, Stefan & Bollen, Johannes, 2012. "Fossil fuel supply, leakage and the effectiveness of border measures in climate policy," Energy Economics, Elsevier, vol. 34(S2), pages S181-S189.
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-29 (All new papers)
- NEP-ENE-2012-07-29 (Energy Economics)
- NEP-ENV-2012-07-29 (Environmental Economics)
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