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Carbon Leakage with Structural Gravity

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  • Aichele, Rahel

Abstract

The future international climate policy architecture will most likely consist of partial climate policy initiatives like the EU's Emission Trading System. Trade integration threatens to undermine these systems' environmental effectiveness by shifting emissions to other countries. We estimate a gravity model based on 103 countries and use it to simulate several such climate policy experiments. The model's parameters are structurally linked to empirical estimates, i.e. bilateral trade costs and the elasticity of substitution are consistent with the data. Unlike previous empirical work, the approach allows to quantify emission relocation in general equilibrium. With trade liberalization experiments, the model also allows to deliver a perspective on environmental aspects of hypothetical FTA formation. We find that an EU emission allowance price of 15 US-$ suffi ces to bring the EU on track for its Kyoto target but also leads to emission relocations of about 10% of the EU's emission savings. --

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 80011.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:80011

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  8. Di Maria, C. & Werf, E.H. van der, 2005. "Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change," Discussion Paper, Tilburg University, Center for Economic Research 2005-68, Tilburg University, Center for Economic Research.
  9. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, American Economic Association, vol. 102(1), pages 94-130, February.
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  11. Peters, Glen P., 2008. "From production-based to consumption-based national emission inventories," Ecological Economics, Elsevier, Elsevier, vol. 65(1), pages 13-23, March.
  12. Peter Egger & Mario Larch & Kevin E. Staub & Rainer Winkelmann, 2011. "The Trade Effects of Endogenous Preferential Trade Agreements," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 3(3), pages 113-43, August.
  13. Rahel Aichele & Gabriel J. Felbermayr, 2011. "Kyoto and Carbon Leakage: An Empirical Analysis of the Carbon Content of Bilateral Trade," CESifo Working Paper Series 3661, CESifo Group Munich.
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