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Subglobal climate agreements and energy-intensive activities: An evaluation of carbon leakage in the copper industry

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Abstract

Subglobal climate policies induce changes in international competitiveness and favor a relocation of carbon-emitting activities to non-abating regions. In this paper, we evaluate the potential for CO2 abatement and the emissions `leakage' effect in the copper industry, a prominent energy-intensive trade-exposed sector. We formulate a plant-level spatial equilibrium model for copper commodities in which parameters describing the behavioral response of agents are calibrated to econometric estimates of price elasticities. We find producers and consumers to be price inelastic even in the long-run, making the copper industry unresponsive to climate policies. Monte Carlo simulations with our model based on statistical uncertainty on elasticity estimates suggest that around 30% of emissions reductions in industrialized countries would be compensated by an increase of emissions in non-abating countries.

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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 13/174.

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Length: 40 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:eth:wpswif:13-174

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Keywords: Carbon leakage; Pollution haven effect; Climate policy; International environmental agreements; International trade; Copper industry.;

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  1. Badi H. Baltagi & Long Liu, 2008. "Testing for Random Effects and Spatial Lag Dependence in Panel Data Models," Center for Policy Research Working Papers 102, Center for Policy Research, Maxwell School, Syracuse University.
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  11. Alvarado, Sergio & Maldonado, Pedro & Jaques, Iván, 1999. "Energy and environmental implications of copper production," Energy, Elsevier, vol. 24(4), pages 307-316.
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  14. Pei, Fanyu & Tilton, John E., 1999. "Consumer preferences, technological change, and the short-run income elasticity of metal demand," Resources Policy, Elsevier, vol. 25(2), pages 87-109, June.
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Cited by:
  1. Pothen, Frank, 2014. "Dynamic market power in an exhaustible resource industry: The case of rare earth elements," ZEW Discussion Papers 14-005, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Pothen, Frank, 2013. "The metal resources (METRO) model: A dynamic partial equilibrium model for metal markets applied to rare earth elements," ZEW Discussion Papers 13-112, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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