The Competitiveness Impacts of Climate Change Mitigation Policies
The pollution haven hypothesis suggests that unilateral domestic emission mitigation policies could cause adverse â€œcompetitivenessâ€ impacts on domestic manufacturers as they lose market share to foreign competitors and relocate production activity â€“ and emissions â€“ 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 firmsâ€™ economic output.
|Date of creation:||2011|
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|Publication status:||Published in HKS Faculty Research Working Paper Series|
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