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The Competitiveness Impacts of Climate Change Mitigation Policies

  • Aldy, Joseph E.

    (Harvard University)

  • Pizer, William A.

    (Duke University)

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.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp11-047.

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Date of creation: Dec 2011
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Handle: RePEc:ecl:harjfk:rwp11-047
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  1. Morgenstern, Richard D. & Pizer, William A. & Shih, Jhih-Shyang, 2002. "Jobs Versus the Environment: An Industry-Level Perspective," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 412-436, May.
  2. Arik Levinson & M. Scott Taylor, 2008. "Unmasking The Pollution Haven Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 223-254, 02.
  3. Josh Ederington, Arik Levinson & Jenny Minier, 2003. "Footlose and Pollution Free," Working Papers gueconwpa~03-03-04, Georgetown University, Department of Economics.
  4. Grossman, Gene & Krueger, Alan B, 1992. "Environmental Impacts of a North American Free Trade Agreement," CEPR Discussion Papers 644, C.E.P.R. Discussion Papers.
  5. Matthew E. Kahn & Erin T. Mansur, 2010. "How Do Energy Prices, and Labor and Environmental Regulations Affect Local Manufacturing Employment Dynamics? A Regression Discontinuity Approach," NBER Working Papers 16538, National Bureau of Economic Research, Inc.
  6. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 2001. "Is Free Trade Good for the Environment?," American Economic Review, American Economic Association, vol. 91(4), pages 877-908, September.
  7. Henderson, J Vernon, 1996. "Effects of Air Quality Regulation," American Economic Review, American Economic Association, vol. 86(4), pages 789-813, September.
  8. Tim Jeppesen & John A. List & Henk Folmer, 2002. "Environmental Regulations and New Plant Location Decisions: Evidence from a Meta-Analysis," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 19-49.
  9. Robert C. Feenstra, 1996. "U.S. Imports, 1972-1994: Data and Concordances," NBER Working Papers 5515, National Bureau of Economic Research, Inc.
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