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Can a unilateral carbon tax reduce emissions elsewhere?

  • Elliott, Joshua
  • Fullerton, Don

One country or sector that tries to reduce greenhouse gas emissions may fear that other countries or sectors will get a competitive advantage and increase emissions. Computable general equilibrium (CGE) models such as Elliott et al. (2010a, 2010b) indicate that 15–25% of abatement might be offset by this “leakage.” Yet the Fullerton et al. (2012) simple two-sector analytical general equilibrium model shows an offsetting term with negative leakage. In this paper, we use a full CGE model with many countries and many goods to measure effects in a way that allows for this negative leakage term. We vary elasticities of substitution and confirm the analytical model's prediction that whether this negative leakage term offsets the positive leakage terms depends on the ability of consumers to substitute into the untaxed good relative to the ability of firms to substitute from carbon emissions into labor or capital.

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Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 36 (2014)
Issue (Month): 1 ()
Pages: 6-21

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Handle: RePEc:eee:resene:v:36:y:2014:i:1:p:6-21
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505569

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  1. Corrado Di Maria & Edwin van der Werf, 2006. "Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change," Working Papers 2006.94, Fondazione Eni Enrico Mattei.
  2. Golombek Rolf & Hoel Michael, 2004. "Unilateral Emission Reductions and Cross-Country Technology Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-27, September.
  3. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2013. "Embodied Carbon Tariffs," ZenTra Working Papers in Transnational Studies 25 / 2014, ZenTra - Center for Transnational Studies, revised Jan 2014.
  4. Don Fullerton & Daniel Karney & Kathy Baylis, 2011. "Negative Leakage," NBER Working Papers 17001, National Bureau of Economic Research, Inc.
  5. Winchester Niven & Paltsev Sergey & Reilly John M, 2011. "Will Border Carbon Adjustments Work?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, 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. repec:old:wpaper:340 is not listed on IDEAS
  8. Nicole Gürtzgen & Michael Rauscher, 2000. "Environmental Policy, Intra-Industry Trade and Transfrontier Pollution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(1), pages 59-71, September.
  9. Copeland, Brian R. & Taylor, M. Scott, 2005. "Free trade and global warming: a trade theory view of the Kyoto protocol," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 205-234, March.
  10. Swee Chua, 2003. "Does tighter environmental policy lead to a comparative advantage in less polluting goods?," Oxford Economic Papers, Oxford University Press, vol. 55(1), pages 25-35, January.
  11. Joshua Elliott & Ian Foster & Samuel Kortum & Todd Munson & Fernando Pérez Cervantes & David Weisbach, 2010. "Trade and Carbon Taxes," American Economic Review, American Economic Association, vol. 100(2), pages 465-69, May.
  12. Sergey V. Paltsev, 2001. "The Kyoto Protocol: Regional and Sectoral Contributions to the Carbon Leakage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 53-80.
  13. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
  14. Elliott Joshua & Foster Ian & Judd Kenneth & Moyer Elisabeth & Munson Todd, 2010. "CIM-EARTH: Framework and Case Study," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-34, December.
  15. 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.
  16. Reyer Gerlagh & Onno Kuik, 2007. "Carbon Leakage with International Technology Spillovers," Working Papers 2007.33, Fondazione Eni Enrico Mattei.
  17. Christoph Böhringer & Thomas Rutherford, 2002. "Carbon Abatement and International Spillovers," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(3), pages 391-417, July.
  18. Di Maria Corrado & Smulders Sjak A., 2005. "Trade Pessimists vs Technology Optimists: Induced Technical Change and Pollution Havens," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-27, January.
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