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Subglobal Carbon Policy and the Competitive Selection of Heterogeneous Firms

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  • 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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    Cited by:

    1. Antoine Dechezleprêtre & Misato Sato, 2017. "The Impacts of Environmental Regulations on Competitiveness," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(2), pages 183-206.
    2. Hübler, Michael & Pothen, Frank, 2013. "The optimal tariff in the presence of trade-induced productivity gains," ZEW Discussion Papers 13-103, ZEW - Leibniz Centre for European Economic Research.
    3. Meunier, Guy & Ponssard, Jean-Pierre, 2014. "Capacity decisions with demand fluctuations and carbon leakage," Resource and Energy Economics, Elsevier, vol. 36(2), pages 436-454.
    4. Böhringer, Christoph & Balistreri, Edward J. & Rutherford, Thomas F., 2012. "The role of border carbon adjustment in unilateral climate policy: Overview of an Energy Modeling Forum study (EMF 29)," Energy Economics, Elsevier, vol. 34(S2), pages 97-110.
    5. Branger, Frédéric & Quirion, Philippe, 2014. "Would border carbon adjustments prevent carbon leakage and heavy industry competitiveness losses? Insights from a meta-analysis of recent economic studies," Ecological Economics, Elsevier, vol. 99(C), pages 29-39.
    6. McAusland, Carol, 2021. "Carbon taxes and footprint leakage: Spoilsport effects," Journal of Public Economics, Elsevier, vol. 204(C).
    7. Michael Jakob & Jan Christoph Steckel & Ottmar Edenhofer, 2014. "Consumption- Versus Production-Based Emission Policies," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 297-318, October.
    8. Christoph Böhringer & André Müller & Jan Schneider, 2015. "Carbon Tariffs Revisited," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(4), pages 629-672.
    9. Jared C. Carbone & Nicholas Rivers, 2014. "Climate policy and competitiveness: Policy guidance and quantitative evidence," Working Papers 2014-05, Colorado School of Mines, Division of Economics and Business.
    10. Zhou, Bo & Zhang, Cheng & Wang, Qunwei & Zhou, Dequn, 2020. "Does emission trading lead to carbon leakage in China? Direction and channel identifications," Renewable and Sustainable Energy Reviews, Elsevier, vol. 132(C).
    11. 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).
    12. Schinko, Thomas & Bednar-Friedl, Birgit & Steininger, Karl W. & Grossmann, Wolf D., 2014. "Switching to carbon-free production processes: Implications for carbon leakage and border carbon adjustment," Energy Policy, Elsevier, vol. 67(C), pages 818-831.
    13. Anouliès, Lisa, 2017. "Heterogeneous firms and the environment: a cap-and-trade program," Journal of Environmental Economics and Management, Elsevier, vol. 84(C), pages 84-101.
    14. Edward J. Balistreri & Christoph Böhringer & Thomas F. Rutherford, 2018. "Quantifying Disruptive Trade Policies," CESifo Working Paper Series 7382, CESifo.
    15. Sakai, Marco & Barrett, John, 2016. "Border carbon adjustments: Addressing emissions embodied in trade," Energy Policy, Elsevier, vol. 92(C), pages 102-110.
    16. Olekseyuk, Zoryana & Schürenberg-Frosch, Hannah, 2016. "Are Armington elasticities different across countries and sectors? A European study," Economic Modelling, Elsevier, vol. 55(C), pages 328-342.
    17. Antimiani, Alessandro & Costantini, Valeria & Kuik, Onno & Paglialunga, Elena, 2016. "Mitigation of adverse effects on competitiveness and leakage of unilateral EU climate policy: An assessment of policy instruments," Ecological Economics, Elsevier, vol. 128(C), pages 246-259.
    18. Hübler, Michael & Pothen, Frank, 2017. "Trade-induced productivity gains reduce incentives to impose strategic tariffs," Economic Modelling, Elsevier, vol. 61(C), pages 420-431.
    19. Aliénor Cameron & Marc Baudry, 2022. "The case for a Carbon Border Adjustment: Where do economists stand?," Policy Papers 2022.01, FAERE - French Association of Environmental and Resource Economists.
    20. Rhodes, Ekaterina & Hoyle, Aaron & McPherson, Madeleine & Craig, Kira, 2022. "Understanding climate policy projections: A scoping review of energy-economy models in Canada," Renewable and Sustainable Energy Reviews, Elsevier, vol. 153(C).
    21. Paroussos, Leonidas & Fragkos, Panagiotis & Capros, Pantelis & Fragkiadakis, Kostas, 2015. "Assessment of carbon leakage through the industry channel: The EU perspective," Technological Forecasting and Social Change, Elsevier, vol. 90(PA), pages 204-219.
    22. 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.
    23. Zoryana Olekseyuk, 2015. "The EU-Ukraine Deep and Comprehensive Free Trade Agreement and the importance of FDI," EcoMod2015 8391, EcoMod.
    24. Zoryana Olekseyuk, 2016. "Modeling of FDI in business services: Additional effects in case of Ukraine's European integration," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(7), pages 1010-1043, October.
    25. Thomas F. Rutherford & Andrew Schreiber, 2019. "Tools for Open Source, Subnational CGE Modeling with an Illustrative Analysis of Carbon Leakage," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 4(2), pages 1-66, December.

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    More about this item

    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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