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Carbon Leakage in a Small Open Economy: The Importance of International Climate Policies

Author

Listed:
  • Ulrik R. Beck

    (Danish Research institute for Economic Analysis and Modelling (DREAM))

  • Peter K. Kruse-Andersen

    (Department of Economics, University of Copenhagen)

  • Louis B. Stewart

    (The Secretariat of the Danish Council on Climate Change)

Abstract

A substantial literature investigates carbon leakage effects for large countries and climate coalitions. However, little is known about leakage effects for a small open economy within a climate coalition. To fill this gap in the literature, we incorporate international climate policies relevant for a small open EU economy into the general equilibrium model GTAP-E. We focus our analysis on Denmark, but we show that our framework can be applied to any EU economy. We find substantial leakage associated with an economy-wide CO2e tax. This result is strongly affected by EU climate policies. We also present sector-specific leakage rates and find large sectoral differences.

Suggested Citation

  • Ulrik R. Beck & Peter K. Kruse-Andersen & Louis B. Stewart, 2021. "Carbon Leakage in a Small Open Economy: The Importance of International Climate Policies," Discussion Papers 21-08, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:2108
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    File URL: https://www.economics.ku.dk/research/publications/wp/dp-2021/2108.pdf
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    More about this item

    Keywords

    Carbon leakage; Trade and the environment; Climate policy; Computable general equilibrium;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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