IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_12332.html

A Model of the Model: Unpacking CGE Results on Carbon Leakage

Author

Listed:
  • Daniel H. Karney
  • Don Fullerton
  • Kathy Baylis

Abstract

Computational general equilibrium (CGE) models can evaluate detailed tax reforms, trade restrictions, or environmental policy. These models can capture many complexities, but these complexities can make results difficult to interpret. Analytical general equilibrium (AGE) models provide better intuition and interpretation but cannot capture relevant complexities. We propose a method that employs AGE models to understand CGE models – a “model of the model”. We apply this idea to climate policy and carbon leakage – the increase in emissions elsewhere. Our AGE models identify seven key economic determinants of leakage within any one outcome. We then unpack results from three existing CGE models.

Suggested Citation

  • Daniel H. Karney & Don Fullerton & Kathy Baylis, 2025. "A Model of the Model: Unpacking CGE Results on Carbon Leakage," CESifo Working Paper Series 12332, CESifo.
    • Handle: RePEc:ces:ceswps:_12332
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/cesifo1_wp12332.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Goulder, Lawrence H. & Hafstead, Marc & Williams III, Roberton C., 2024. "Is Broader Always Better? Preexisting Distortions, Emissions Elasticities, and the Scope of Emissions Pricing," RFF Working Paper Series 24-13, Resources for the Future.
    2. repec:aen:journl:2001v22-04-a03 is not listed on IDEAS
    3. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
    4. Fell, Harrison & Maniloff, Peter, 2018. "Leakage in regional environmental policy: The case of the regional greenhouse gas initiative," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 1-23.
    5. Larch, Mario & Löning, Markus & Wanner, Joschka, 2018. "Can degrowth overcome the leakage problem of unilateral climate policy?," Ecological Economics, Elsevier, vol. 152(C), pages 118-130.
    6. 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.
    7. Sergey V. Paltsev, 2001. "The Kyoto Protocol: Regional and Sectoral Contributions to the Carbon Leakage," The Energy Journal, , vol. 22(4), pages 53-79, October.
    8. Cloé Garnache & Pierre Mérel, 2022. "Environmental Policy in General Equilibrium: New Insights from a Canonical Model," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(1), pages 113-140.
    9. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, Tilburg University, School of Economics and Management.
    10. repec:ags:aaea22:335587 is not listed on IDEAS
    11. Fischer, Carolyn & Fox, Alan K., 2012. "Comparing policies to combat emissions leakage: Border carbon adjustments versus rebates," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 199-216.
    12. Shoven, John B, 1976. "The Incidence and Efficiency Effects of Taxes on Income from Capital," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1261-1283, December.
    13. Jared C. Carbone, 2013. "Linking Numerical and Analytical Models of Carbon Leakage," American Economic Review, American Economic Association, vol. 103(3), pages 326-331, May.
    14. Simon Galle & Andrés Rodríguez-Clare & Moises Yi, 2023. "Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(1), pages 331-375.
    15. Carbone, Jared C. & Smith, V. Kerry, 2008. "Evaluating policy interventions with general equilibrium externalities," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1254-1274, June.
    16. Babiker, Mustafa H., 2005. "Climate change policy, market structure, and carbon leakage," Journal of International Economics, Elsevier, vol. 65(2), pages 421-445, March.
    17. Adams, Philip D., 2005. "Interpretation of results from CGE models such as GTAP," Journal of Policy Modeling, Elsevier, vol. 27(8), pages 941-959, November.
    18. Merel, Pierre & Qin, Zhiran & Sexton, Richard J., 2023. "Policy-Induced Expansion of Organic Farmland: Implications for Food Prices and Welfare," 2023 Annual Meeting, July 23-25, Washington D.C. 335587, Agricultural and Applied Economics Association.
    19. Gouel, Christophe & Laborde, David, 2021. "The crucial role of domestic and international market-mediated adaptation to climate change," Journal of Environmental Economics and Management, Elsevier, vol. 106(C).
    20. Böhringer, Christoph & Lange, Andreas & Rutherford, Thomas F., 2014. "Optimal emission pricing in the presence of international spillovers: Decomposing leakage and terms-of-trade motives," Journal of Public Economics, Elsevier, vol. 110(C), pages 101-111.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schinko, Thomas & Bednar-Friedl, Birgit & Steininger, Karl W. & Grossmann, Wolf D., 2014. "Switching to carbon-free production processes: Implications for carbon leakage and border carbon adjustment," Energy Policy, Elsevier, vol. 67(C), pages 818-831.
    2. King, Maia & Tarbush, Bassel & Teytelboym, Alexander, 2019. "Targeted carbon tax reforms," European Economic Review, Elsevier, vol. 119(C), pages 526-547.
    3. Florian Landis & Sebastian Rausch & Mirjam Kosch, 2018. "Differentiated Carbon Prices and the Economic Cost of Decarbonization," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(2), pages 483-516, June.
    4. repec:grz:wpaper:2013-03 is not listed on IDEAS
    5. Bowei Guo & Newbery David, 2023. "The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade," The Energy Journal, , vol. 44(1), pages 9-32, January.
    6. Doda, Baran & Quemin, Simon & Taschini, Luca, 2019. "Linking permit markets multilaterally," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    7. Steven M. Smith, 2019. "The Relative Economic Merits of Alternative Water Rights," Working Papers 2019-08, Colorado School of Mines, Division of Economics and Business.
    8. Christoph Böhringer & Knut Einar Rosendahl & Halvor Storrøsten, 2021. "Smart hedging against carbon leakage [An overview of the GTAP 9 data base]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(107), pages 439-484.
    9. Michael Jakob & Jan Christoph Steckel & Ottmar Edenhofer, 2014. "Consumption- Versus Production-Based Emission Policies," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 297-318, October.
    10. Jebeli, Hossein & Chen, Y.-H. Henry & Johnston, Craig & Paltsev, Sergey & Tremblay, Marie-Christine, 2025. "Impacts of border carbon adjustments on the Canadian economy," Energy Economics, Elsevier, vol. 141(C).
    11. Branger, Frédéric & Quirion, Philippe, 2014. "Would border carbon adjustments prevent carbon leakage and heavy industry competitiveness losses? Insights from a meta-analysis of recent economic studies," Ecological Economics, Elsevier, vol. 99(C), pages 29-39.
    12. Böhringer, Christoph & Rosendahl, Knut Einar & Storrøsten, Halvor Briseid, 2017. "Robust policies to mitigate carbon leakage," Journal of Public Economics, Elsevier, vol. 149(C), pages 35-46.
    13. Peter Kjær Kruse-Andersen & Peter Birch Sørensen, 2021. "Opimal Unilateral Climate Policy with Carbon Leakage at the Extensive and the Intensive Margin," CESifo Working Paper Series 9185, CESifo.
    14. Robert Innes & George Frisvold, 2009. "The Economics of Endangered Species," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 485-512, September.
    15. Brittany Tarufelli & Ben Gilbert, 2019. "Leakage in Regional Climate Policy? Implications of Electricity Market Design," Working Papers 2019-07, Colorado School of Mines, Division of Economics and Business, revised Dec 2021.
    16. Xianting Bao & Yuran Jin, 2025. "Insight into border carbon adjustment: a visual bibliometric analysis from 2009 to 2024," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-17, December.
    17. Böhringer, Christoph & Garcia-Muros, Xaquin & Cazcarro, Ignacio & Arto, Iñaki, 2017. "The efficiency cost of protective measures in climate policy," Energy Policy, Elsevier, vol. 104(C), pages 446-454.
    18. Campolmi, Alessia & Fadinger, Harald & Forlati, Chiara & Stillger, Sabine & Wagner, Ulrich, 2023. "Designing Effective Carbon Border Adjustment with Minimal Information Requirements. Theory and Empirics," CEPR Discussion Papers 18645, C.E.P.R. Discussion Papers.
    19. Jared C. Carbone & Nicholas Rivers, 2014. "Climate policy and competitiveness: Policy guidance and quantitative evidence," Working Papers 2014-05, Colorado School of Mines, Division of Economics and Business.
    20. Kathy Baylis & Don Fullerton & Daniel H. Karney, 2014. "Negative Leakage," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(1), pages 51-73.
    21. Lanz, Bruno & Rausch, Sebastian, 2011. "General equilibrium, electricity generation technologies and the cost of carbon abatement: A structural sensitivity analysis," Energy Economics, Elsevier, vol. 33(5), pages 1035-1047, September.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_12332. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.