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Optimal containment and policy differentiation under unilateral climate policy

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  • Stefan Csordás
  • Frank C. Krysiak

Abstract

Without a broad international agreement, climate policy is less effective, owing to carbon leakage. We investigate whether this negative effect can be addressed by partially containing the policy's effects to intermediate goods sectors, such as electricity or transportation services. We use a three-sector model to study a policy that taxes emissions caused by intermediate goods production while subsidizing the intermediate good. We characterize the optimal containment policy for combating carbon leakage and show that it complements the concept of policy differentiation.

Suggested Citation

  • Stefan Csordás & Frank C. Krysiak, 2011. "Optimal containment and policy differentiation under unilateral climate policy," Canadian Journal of Economics, Canadian Economics Association, vol. 44(3), pages 814-837, August.
  • Handle: RePEc:cje:issued:v:44:y:2011:i:3:p:814-837
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    More about this item

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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