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Carbon Leakage with International Technology Spillovers

  • Reyer Gerlagh

    (University of Manchester)

  • Onno Kuik

    (Vrije Universiteit)

In this paper we study the effect of international technology spillovers on carbon leakage. We first develop and analyse two simple competing models for carbon leakage. The first model represents the pollution haven hypothesis. It focuses on the international competition between firms that produce energy-intensive goods. The second model highlights the role of a globally integrated carbon-energy market. We calculate formulas for the leakage rates in both models and, through meta-analysis, show that the second model captures best the major mechanisms reported in the CGE literature on carbon leakage. We extend this model with endogenous energy-saving technology and international technology spillovers. This feature is shown to decrease carbon leakage. We build-in the endogenous energy-saving technology in a large CGE model and verify that the results from the formal model carry over. Carbon leakage becomes negative for moderate levels of international technology spillover.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.33.

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Date of creation: Mar 2007
Date of revision:
Handle: RePEc:fem:femwpa:2007.33
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