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Subglobal Carbon Policy and the Competitive Selection of Heterogeneous Firms

Author

Listed:
  • Edward J. Balistreri

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

  • Thomas F. Rutherford

    (University of Wisconsin)

Abstract

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.

Suggested Citation

  • Edward J. Balistreri & Thomas F. Rutherford, 2012. "Subglobal Carbon Policy and the Competitive Selection of Heterogeneous Firms," Working Papers 2012-01, Colorado School of Mines, Division of Economics and Business.
    • Handle: RePEc:mns:wpaper:wp201201
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    File URL: http://econbus-papers.mines.edu/working-papers/wp201201.pdf
    File Function: First version, 2012
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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