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Carbon leakage revisited: unilateral climate policy with directed technical change

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Author Info
Maria, Corrado di
Werf, Edwin van der (Tilburg University, Center for Economic Research)

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Abstract

The increase in carbondioxide emissions by some countries in reaction to an emission reduction by countries with climate policy (carbon leakage) is seen as a serious threat to unilateral climate policy. Using a two-country model where only one of the countries enforces an exogenous cap on emissions, this paper analyzes the effect of technical change that can be directed towards the clean or dirty input, on carbon leakage. We show that, as long as technical change cannot be directed, there will always be carbon leakage through the standard terms-of-trade effect. However, once we allow for directed technical change, a counterbalancing induced technology effect arises and carbon leakage will generally be lower. Moreover, we show that when the relative demand for energy is sufficiently elastic, carbon leakage may be negative: the technology effect induces the unconstrained region to voluntarily reduce its own emissions.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 68.

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Date of creation: 2005
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Handle: RePEc:dgr:kubcen:200568

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Related research
Keywords: carbon leakage; directed technical change;

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Find related papers by JEL classification:
F18 - International Economics - - Trade - - - Trade and Environment
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Grubb, Michael & Chapuis, Thierry & Duong, Minh Ha, 1995. "The economics of changing course : Implications of adaptability and inertia for optimal climate policy," Energy Policy, Elsevier, vol. 23(4-5), pages 417-431. [Downloadable!] (restricted)
    Other versions:
  2. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 2001. "Is Free Trade Good for the Environment?," American Economic Review, American Economic Association, vol. 91(4), pages 877-908, September. [Downloadable!] (restricted)
    Other versions:
  3. Daron Acemoglu, 2007. "Equilibrium Bias of Technology," Econometrica, Econometric Society, vol. 75(5), pages 1371-1409, 09. [Downloadable!] (restricted)
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  4. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1999. "The Induced Innovation Hypothesis And Energy-Saving Technological Change," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 941-975, August. [Downloadable!] (restricted)
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  5. Dermot Gately & Hiliard G. Huntington, 2002. "The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand," The Energy Journal, International Association for Energy Economics, vol. 23(1), pages 19-56.
  6. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 531-55, May. [Downloadable!] (restricted)
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  7. Bates, Robin W. & Moore, Edwin A., 1992. "Commercial energy efficiency and the environment," Policy Research Working Paper Series 972, The World Bank. [Downloadable!]
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  10. Jean-Marc Burniaux & Joaquim Oliveira Martins, 2000. "Carbon Emission Leakages: A General Equilibrium View," OECD Economics Department Working Papers 242, OECD, Economics Department. [Downloadable!]
  11. Babiker, Mustafa H., 2005. "Climate change policy, market structure, and carbon leakage," Journal of International Economics, Elsevier, vol. 65(2), pages 421-445, March. [Downloadable!] (restricted)
  12. Popp, David C., 2001. "The effect of new technology on energy consumption," Resource and Energy Economics, Elsevier, vol. 23(3), pages 215-239, July. [Downloadable!] (restricted)
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  15. Acemoglu, Daron, 2002. "Directed Technical Change," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 781-809, October.
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  16. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January. [Downloadable!] (restricted)
  17. Rolf Golombek & Michael Hoel, 2004. "Unilateral Emission Reductions and Cross-Country Technology Spillovers," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(2). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gilbert Metcalf & David Weisbach, 2008. "The Design of a Carbon Tax," Discussion Papers Series, Department of Economics, Tufts University 0727, Department of Economics, Tufts University. [Downloadable!]
    Other versions:
  2. Larson, Donald F. & Ambrosi, Philippe & Dinar, Ariel & Rahman, Shaikh Mahfuzur & Entler, Rebecca, 2008. "Carbon markets, institutions, policies, and research," Policy Research Working Paper Series 4761, The World Bank. [Downloadable!]
  3. Reyer Gerlagh & Onno Kuik, 2007. "Carbon Leakage with International Technology Spillovers," Working Papers 2007.33, Fondazione Eni Enrico Mattei. [Downloadable!]
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