Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change
AbstractThe 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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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-68.
Date of creation: 2005
Date of revision:
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Other versions of this item:
- Corrado Maria & Edwin Werf, 2008. "Carbon leakage revisited: unilateral climate policy with directed technical change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(2), pages 55-74, February.
- 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.
- F18 - International Economics - - Trade - - - Trade and Environment
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-05 (All new papers)
- NEP-ENE-2005-06-05 (Energy Economics)
- NEP-ENV-2005-06-05 (Environmental Economics)
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