Advanced Search
MyIDEAS: Login to save this paper or follow this series

Carbon Tariffs: Impacts on Technology Choice, Regional Competitiveness, and Global Emissions

Contents:

Author Info

  • David F. Drake

    ()
    (Harvard Business School, Technology and Operations Management Unit)

Registered author(s):

    Abstract

    Carbon regulation is intended to reduce global emissions, but there is growing concern that such regulation may simply shift production to unregulated regions, potentially increasing overall carbon emissions in the process. Carbon tariffs have emerged as a possible mechanism to address this concern by imposing carbon costs on imports at the regulated region's border. Advocates claim that such a mechanism would level the playing field whereas opponents argue that such a tariff is anti-competitive. This paper analyzes how carbon tariffs affect technology choice, regional competitiveness, and global emissions through a model of imperfect competition between "domestic" (i.e., carbon-regulated) firms and "foreign" (i.e., unregulated) firms, where domestic firms have the option to offshore production and the number of foreign entrants is endogenous. Under a carbon tariff, results indicate that foreign firms would adopt clean technology at a lower emissions price than domestic producers, with the number of foreign entrants increasing in emissions price only over intervals where offshore foreign firms hold this technology advantage. Further, domestic firms would only offshore production under a carbon tariff to adopt technology strictly cleaner than technology utilized domestically. As a consequence, under a carbon tariff, foreign market share is non-monotonic in emissions price, and global emissions conditionally decrease. Without a carbon tariff, foreign share monotonically increases in emissions price, and a shift to offshore production results in a strict increase in global emissions.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.hbs.edu/research/pdf/12-029.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 12-029.

    as in new window
    Length: 43 pages
    Date of creation: Oct 2011
    Date of revision:
    Handle: RePEc:hbs:wpaper:12-029

    Contact details of provider:
    Postal: Soldiers Field, Boston, Massachusetts 02163
    Phone: 617.495.6000
    Web page: http://www.hbs.edu/
    More information through EDIRC

    Related research

    Keywords: Carbon regulation; Carbon leakage; Technology choice; Imperfect competition;

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Monjon, Stéphanie & Quirion, Philippe, 2010. "How to design a border adjustment for the European Union Emissions Trading System?," Energy Policy, Elsevier, vol. 38(9), pages 5199-5207, September.
    2. Grubb, M. & Neuhoff, K., 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Cambridge Working Papers in Economics 0645, Faculty of Economics, University of Cambridge.
    3. Albert Y. Ha & Shilu Tong & Hongtao Zhang, 2011. "Sharing Demand Information in Competing Supply Chains with Production Diseconomies," Management Science, INFORMS, vol. 57(3), pages 566-581, March.
    4. Albert Y. Ha & Shilu Tong, 2008. "Contracting and Information Sharing Under Supply Chain Competition," Management Science, INFORMS, vol. 54(4), pages 701-715, April.
    5. van Asselt, Harro & Biermann, Frank, 2007. "European emissions trading and the international competitiveness of energy-intensive industries: a legal and political evaluation of possible supporting measures," Energy Policy, Elsevier, vol. 35(1), pages 497-506, January.
    6. Babiker, Mustafa H., 2005. "Climate change policy, market structure, and carbon leakage," Journal of International Economics, Elsevier, vol. 65(2), pages 421-445, March.
    7. Lars-Hendrik Röller & Mihkel M. Tombak, 1993. "Competition and Investment in Flexible Technologies," Management Science, INFORMS, vol. 39(1), pages 107-114, January.
    8. Schulkin, J.Z. & Hobbs, B.F. & Pang, J., 2007. "Long-Run Equilibrium Modeling of Alternative Emissions Allowance Allocation Systems in Electric Power Markets," Cambridge Working Papers in Economics 0748, Faculty of Economics, University of Cambridge.
    9. Requate, Till, 2005. "Environmental Policy under Imperfect Competition : A Survey," Economics Working Papers 2005,12, Christian-Albrechts-University of Kiel, Department of Economics.
    10. Ben Lockwood & John Whalley, 2008. "Carbon Motivated Border Tax Adjustments: Old Wine in Green Bottles?," NBER Working Papers 14025, National Bureau of Economic Research, Inc.
    11. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
    12. Lode Li, 2002. "Information Sharing in a Supply Chain with Horizontal Competition," Management Science, INFORMS, vol. 48(9), pages 1196-1212, September.
    13. Roland Ismer & Karsten Neuhoff, 2007. "Border tax adjustment: a feasible way to support stringent emission trading," European Journal of Law and Economics, Springer, vol. 24(2), pages 137-164, October.
    14. van Asselt, Harro & Brewer, Thomas, 2010. "Addressing competitiveness and leakage concerns in climate policy: An analysis of border adjustment measures in the US and the EU," Energy Policy, Elsevier, vol. 38(1), pages 42-51, January.
    15. Kuik, Onno & Hofkes, Marjan, 2010. "Border adjustment for European emissions trading: Competitiveness and carbon leakage," Energy Policy, Elsevier, vol. 38(4), pages 1741-1748, April.
    16. Damien Demailly & Philippe Quirion, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering vs. output-based allocation," Post-Print halshs-00639327, HAL.
    17. Sarang Deo & Charles J. Corbett, 2009. "Cournot Competition Under Yield Uncertainty: The Case of the U.S. Influenza Vaccine Market," Manufacturing & Service Operations Management, INFORMS, vol. 11(4), pages 563-576, July.
    18. Thorsten Bayındır-Upmann, 2004. "On the Double Dividend under Imperfect Competition," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(2), pages 169-194, June.
    19. Meredith L. Fowlie, 2009. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 72-112, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:hbs:wpaper:12-029. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Soebagio Notosoehardjo).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.