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Subglobal Carbon Policy and the Competitive Selection of Heterogeneous Firms

  • Edward J. Balistreri


    (Division of Economics and Business, Colorado School of Mines)

  • Thomas F. Rutherford


    (University of Wisconsin)

We analyze subglobal action to mitigate climate change with a consideration of recent advances in the theory of international trade. Subglobal action impacts emissions in unconstrained countries (carbon leakage) through international trade channels. Consequently, estimates of the efficacy of subglobal action, tariffs on embodied carbon, and the distribution of policy costs will be sensitive to the assumed structure of international trade. While most climate-policy models rely on an Armington (1969) structure of international trade, recent empirical evidence supports a new theory suggested by Melitz (2003). We find significant quantitative and qualitative differences when we consider the Melitz trade structure. These differences are important as an alternative, and arguably more plausible, representation of how trade and border adjustments interact with climate policy.

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Paper provided by Colorado School of Mines, Division of Economics and Business in its series Working Papers with number 2012-01.

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Length: 29 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:mns:wpaper:wp201201
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