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The Competitiveness Impacts of Climate Change Mitigation Policies

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  • Aldy, Joseph E.

    (Harvard University)

  • Pizer, William A.

    (Duke University)

Abstract

The pollution haven hypothesis suggests that unilateral domestic emission mitigation policies could cause adverse "competitiveness" impacts on domestic manufacturers as they lose market share to foreign competitors and relocate production activity--and emissions--to unregulated economies. We construct a precise definition of competitiveness impacts appropriate for climate change regulation that can be estimated exclusively with domestic production and net import data. We use this definition and a 20+ year panel of 400+ U.S. manufacturing industries to estimate the effects of energy prices, which is in turn used to simulate the impacts of carbon pricing policy. We find that a U.S.-only $15 per ton CO2 price will cause competitiveness effects on the order of a 1.0 to 1.3 percent decline in production among the most energy-intensive manufacturing industries. This amounts to roughly one-third of the total impact of a carbon pricing policy on these firms' economic output.

Suggested Citation

  • Aldy, Joseph E. & Pizer, William A., 2011. "The Competitiveness Impacts of Climate Change Mitigation Policies," Working Paper Series rwp11-047, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp11-047
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    More about this item

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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