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Subglobal climate agreements and energy-intensive activities: An evaluation of carbon leakage in the copper industry

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Abstract

Subglobal climate policies induce changes in international competitiveness and favor a relocation of carbon-emitting activities to non-abating regions. In this paper, we evaluate the potential for CO2 abatement and the emissions `leakage' effect in the copper industry, a prominent energy-intensive trade-exposed sector. We formulate a plant-level spatial equilibrium model for copper commodities in which parameters describing the behavioral response of agents are calibrated to econometric estimates of price elasticities. We find producers and consumers to be price inelastic even in the long-run, making the copper industry unresponsive to climate policies. Monte Carlo simulations with our model based on statistical uncertainty on elasticity estimates suggest that around 30% of emissions reductions in industrialized countries would be compensated by an increase of emissions in non-abating countries.

Suggested Citation

  • Bruno Lanz & Thomas F. Rutherford & John E. Tilton, 2013. "Subglobal climate agreements and energy-intensive activities: An evaluation of carbon leakage in the copper industry," CER-ETH Economics working paper series 13/174, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:13-174
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    Cited by:

    1. Pothen, Frank, 2013. "The metal resources (METRO) model: A dynamic partial equilibrium model for metal markets applied to rare earth elements," ZEW Discussion Papers 13-112, ZEW - Leibniz Centre for European Economic Research.
    2. Bogmans, Christian, 2015. "Can the terms of trade externality outweigh free-riding? The role of vertical linkages," Journal of International Economics, Elsevier, vol. 95(1), pages 115-128.
    3. Katundu Imasiku & Valerie M. Thomas, 2020. "The Mining and Technology Industries as Catalysts for Sustainable Energy Development," Sustainability, MDPI, vol. 12(24), pages 1-13, December.
    4. Tan, Xiujie & Liu, Yu & Cui, Jingbo & Su, Bin, 2018. "Assessment of carbon leakage by channels: An approach combining CGE model and decomposition analysis," Energy Economics, Elsevier, vol. 74(C), pages 535-545.
    5. Pan, Wenqi & Kim, Man-Keun & Ning, Zhuo & Yang, Hongqiang, 2020. "Carbon leakage in energy/forest sectors and climate policy implications using meta-analysis," Forest Policy and Economics, Elsevier, vol. 115(C).
    6. Madison Condon & Ada Ignaciuk, 2013. "Border Carbon Adjustment and International Trade: A Literature Review," OECD Trade and Environment Working Papers 2013/6, OECD Publishing.
    7. Tang, Weiqi & Meng, Bo & Wu, Libo & Liu, Yu, 2016. "Undermined climate policies : a study on the impact of regulatory and financial discrimination across heterogeneous firms in China," IDE Discussion Papers 622, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    8. Dong, Di & An, Haizhong & Huang, Shupei, 2017. "The transfer of embodied carbon in copper international trade: An industry chain perspective," Resources Policy, Elsevier, vol. 52(C), pages 173-180.
    9. Balogh, Jeremiás Máté, 2021. "A kereskedelmi megállapodások szerepe a klímaváltozásban. Szakirodalmi áttekintés [The role of trade agreements in climate change. Systematic literature review]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 540-563.
    10. Pothen, Frank, 2014. "Dynamic market power in an exhaustible resource industry: The case of rare earth elements," ZEW Discussion Papers 14-005, ZEW - Leibniz Centre for European Economic Research.

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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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