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Vertical Targeting and Leakage in Carbon Policy

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  • James B. Bushnell
  • Erin T. Mansur

Abstract

This paper examines the intersection between two aspects of climate policy design. The first is the point of regulation: should it be placed on pollution sources, carbon-rich inputs, or consumers? The second aspect concerns the external effects of a local climate policy. Leakage occurs when partial regulation results in an increase in emissions in unregulated parts of the economy. Our model demonstrates how directly regulating polluters can increase foreign emissions while indirect regulation (either upstream or downstream of the pollution source) will decrease foreign emissions. The net effect on combined domestic and foreign emissions will depend on market elasticities.

Suggested Citation

  • James B. Bushnell & Erin T. Mansur, 2011. "Vertical Targeting and Leakage in Carbon Policy," American Economic Review, American Economic Association, vol. 101(3), pages 263-267, May.
  • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:263-67
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.263
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    References listed on IDEAS

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    1. 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.
    2. Fischer, Carolyn & Fox, Alan K., 2009. "Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates," Discussion Papers dp-09-02, Resources For the Future.
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    Cited by:

    1. Christensen, Adam & Siddiqui, Sauleh, 2015. "Fuel price impacts and compliance costs associated with the Renewable Fuel Standard (RFS)," Energy Policy, Elsevier, vol. 86(C), pages 614-624.
    2. Zhang, Zengkai & Zhang, Zhongxiang, 2017. "Intermediate input linkage and carbon leakage," Environment and Development Economics, Cambridge University Press, vol. 22(06), pages 725-746, December.
    3. Clayton Munnings & William Acworth & Oliver Sartor & Yong-Gun Kim & Karsten Neuhoff, 2016. "Pricing Carbon Consumption: A Review of an Emerging Trend," Discussion Papers of DIW Berlin 1620, DIW Berlin, German Institute for Economic Research.
    4. Matthew Gibson, 2016. "Regulation-Induced Pollution Substitution," Department of Economics Working Papers 2016-04, Department of Economics, Williams College.
    5. Gibson, Matthew, 2014. "Dirty and perverse: regulation-induced pollution substitution," University of California at San Diego, Economics Working Paper Series qt6tn7t0wv, Department of Economics, UC San Diego.
    6. Don Fullerton & Catherine Wolfram, 2011. "Introduction and Summary to "The Design and Implementation of U.S. Climate Policy"," NBER Chapters,in: The Design and Implementation of U.S. Climate Policy, pages 1-17 National Bureau of Economic Research, Inc.
    7. Sheldon, Ian & McCorriston, Steve, 2014. "Climate Policy and Border Measures: The Case of the US Aluminum Industry," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169544, Agricultural and Applied Economics Association.
    8. Don Fullerton & Catherine Wolfram, 2011. "The Design and Implementation of U.S. Climate Policy: An Introduction," NBER Working Papers 17499, National Bureau of Economic Research, Inc.
    9. Mary F. Evans & Scott M. Gilpatric & Jay P. Shimshack, 2015. "Enforcement spillovers: Lessons from strategic interactions in regulation and product markets," Working Papers 2015-08, University of Tennessee, Department of Economics.
    10. Karplus, Valerie J. & Rausch, Sebastian & Zhang, Da, 2016. "Energy caps: Alternative climate policy instruments for China?," Energy Economics, Elsevier, vol. 56(C), pages 422-431.
    11. Ajani, Judith I. & Keith, Heather & Blakers, Margaret & Mackey, Brendan G. & King, Helen P., 2013. "Comprehensive carbon stock and flow accounting: A national framework to support climate change mitigation policy," Ecological Economics, Elsevier, vol. 89(C), pages 61-72.
    12. Rajagopal, Deepak & Zilberman, David, 2013. "On market-mediated emissions and regulations on life cycle emissions," Ecological Economics, Elsevier, vol. 90(C), pages 77-84.
    13. Christensen, Adam & Hobbs, Benjamin, 2016. "A model of state and federal biofuel policy: Feasibility assessment of the California Low Carbon Fuel Standard," Applied Energy, Elsevier, vol. 169(C), pages 799-812.

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