IDEAS home Printed from https://ideas.repec.org/p/old/dpaper/338.html
   My bibliography  Save this paper

Unilateral climate policy and competitiveness: The implications of differential emission pricing

Author

Listed:
  • Christoph Böhringer

    (Department of Economics, University of Oldenburg)

  • Victoria Alexeeva-Talebi

    (Centre for European Economic Research, Mannheim)

Abstract

Unilateral emission reduction commitments raise concerns on international competitiveness and emission leakage that result in preferential regulatory treatment of domestic energy-intensive and trade-exposed industries. Our analysis illustrates the potential pitfalls of climate policy design which narrowly focuses on competitiveness concerns about energy-intensive and trade-exposed (EITE) branches. The sector-specific gains of preferential regulation in favour of these branches must be traded off against the additional burden imposed on other industries. Beyond burden shifting between industries, differential emission pricing bears the risk for substantial excess cost in emission reduction as policy concedes (too) low carbon prices to EITE industries and thereby foregoes relatively cheap abatement options in these sectors. From the perspective of global cost-effectiveness we find that differential emission pricing of EITE industries hardly reduces emission leakage since the latter is driven through robust international energy market responses to emission constraints. As a consequence the scope for efficiency compared to uniform pricing is very limited. Only towards stringent emission reduction targets will a moderate price differentiation achieve sufficient gains from leakage reduction to offset the losses of diverging marginal abatement cost.

Suggested Citation

  • Christoph Böhringer & Victoria Alexeeva-Talebi, 2011. "Unilateral climate policy and competitiveness: The implications of differential emission pricing," Working Papers V-338-11, University of Oldenburg, Department of Economics, revised Jun 2011.
    • Handle: RePEc:old:dpaper:338
    as

    Download full text from publisher

    File URL: http://www.vwl.uni-oldenburg.de/download/DP_V-338_11.pdf
    File Function: First version, 2011
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Isabel Grilo & Gert Koopman, 2006. "Productivity and Microeconomic Reforms: Strengthening EU Competitiveness," Journal of Industry, Competition and Trade, Springer, vol. 6(2), pages 67-84, June.
    2. Rossi, Vanessa, et al, 1986. "Exchange Rates, Productivity and International Competitiveness," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 2(3), pages 56-73, Autumn.
    3. Azusa OKAGAWA & Kanemi BAN, 2008. "Estimation of substitution elasticities for CGE models," Discussion Papers in Economics and Business 08-16, Osaka University, Graduate School of Economics.
    4. Jean Pierre Ponssard & Neil Walker, 2008. "EU emissions trading and the cement sector: a spatial competition analysis," Climate Policy, Taylor & Francis Journals, vol. 8(5), pages 467-493, September.
    5. Xinpeng Xu, 2000. "International Trade and Environmental Regulation: Time Series Evidence and Cross Section Test," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(3), pages 233-257, November.
    6. Roberto Torrini, 2005. "Profit Share and Returns on Capital Stock in Italy: the Role of Privatisations behind the Rise of the 1990s," CEP Discussion Papers dp0671, Centre for Economic Performance, LSE.
    7. Demailly, Damien & Quirion, Philippe, 2008. "European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry," Energy Economics, Elsevier, vol. 30(4), pages 2009-2027, July.
    8. Damien Demailly & Philippe Quirion, 2006. "CO 2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: grandfathering versus output-based allocation," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 93-113, January.
    9. Guy Meunier & Jean-Pierre Ponssard, 2012. "A Sectoral Approach Balancing Global Efficiency and Equity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(4), pages 533-552, December.
    10. Mr. Francis Vitek, 2009. "An Assessment of External Price Competitiveness for Mozambique," IMF Working Papers 2009/165, International Monetary Fund.
    11. Manne, Alan S. & Barreto, Leonardo, 2004. "Learn-by-doing and carbon dioxide abatement," Energy Economics, Elsevier, vol. 26(4), pages 621-633, July.
    12. David Dollar & Edward N. Wolff, 1993. "Competitiveness, Convergence, and International Specialization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262041359, December.
    13. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
    14. repec:bla:scandj:v:82:y:1980:i:3:p:332-51 is not listed on IDEAS
    15. Sato, S. & Grubb, M. & Cust, J. & Chan, K. & Korppoo, A. & Ceppi, P., 2007. "Differentiation and dynamics of competitiveness impacts from the EU ETS," Cambridge Working Papers in Economics 0712, Faculty of Economics, University of Cambridge.
    16. Imre Fertö & L. J. Hubbard, 2003. "Revealed Comparative Advantage and Competitiveness in Hungarian Agri–Food Sectors," The World Economy, Wiley Blackwell, vol. 26(2), pages 247-259, February.
    17. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
    18. Mahani Zainal Abidin & Wai Heng Loke, 2008. "Revealed Comparative Advantage of Malaysian Exports: The Case for Changing Export Composition," Asian Economic Papers, MIT Press, vol. 7(3), pages 130-147, Fall.
    19. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
    20. Damien Demailly & Philippe Quirion, 2006. "CO 2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: grandfathering versus output-based allocation," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 93-113, January.
    21. Stephan Danninger & Fred Joutz, 2008. "What Explains Germany's Rebounding Export Market Share?," CESifo Economic Studies, CESifo Group, vol. 54(4), pages 681-714, December.
    22. Matthew Gorton & Sophia Davidova & Tomas Ratinger, 2000. "The Competitiveness of Agriculture in Bulgaria and the Czech Republic Vis-à-Vis the European Union (CEEC and EU Agricultural Competitiveness)," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 42(1), pages 59-86, April.
    23. Jenkins, Rhys, 1998. "Environmental Regulation and International Competitiveness: A Review of Literature and Some European Evidence," UNU-INTECH Discussion Paper Series 1998-01, United Nations University - INTECH.
    24. Antje Hildebrandt & Maria Antoinette Silgoner, 2007. "The Competitiveness Challenge: EU Member States in International Trade," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 67-88.
    25. Christoph Böhringer & Thomas F. Rutherford, 2010. "The Costs of Compliance: A CGE Assessment of Canada’s Policy Options under the Kyoto Protocol," The World Economy, Wiley Blackwell, vol. 33(2), pages 177-211, February.
    26. Karl Aiginger, 2006. "Competitiveness: From a Dangerous Obsession to a Welfare Creating Ability with Positive Externalities," Journal of Industry, Competition and Trade, Springer, vol. 6(2), pages 161-177, June.
    27. Damien Demailly & Philippe Quirion, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering vs. output-based allocation," Post-Print halshs-00639327, HAL.
    28. Lih-Jau Wang, 1995. "Environmental capital flight and pollution tax," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 5(3), pages 273-286, April.
    29. Peltonen, Tuomas A. & Skala, Martin & Santos Rivera, Alvaro & Pula, Gabor, 2008. "Imports and profitability in the euro area manufacturing sector: the role of emerging market economies," Working Paper Series 918, European Central Bank.
    30. Rudiger Ahrend & Donato de Rosa & William Tompson, 2007. "Russian Manufacturing and the Threat of ‘Dutch Disease': A Comparison of Competitiveness Developments in Russian and Ukrainian Industry," OECD Economics Department Working Papers 540, OECD Publishing.
    31. Ashfaqul Babool & Michael Reed, 2010. "The impact of environmental policy on international competitiveness in manufacturing," Applied Economics, Taylor & Francis Journals, vol. 42(18), pages 2317-2326.
    32. Inka Havrila & Pemasiri Gunawardana, 2003. "Analysing Comparative Advantage and Competitiveness: An Application to Australia's Textile and Clothing Industries," Australian Economic Papers, Wiley Blackwell, vol. 42(1), pages 103-117, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hübler, Michael & Löschel, Andreas, 2013. "The EU Decarbonisation Roadmap 2050—What way to walk?," Energy Policy, Elsevier, vol. 55(C), pages 190-207.
    2. Antimiani, Alessandro & Costantini, Valeria & Martini, Chiara & Salvatici, Luca & Tommasino, Maria Cristina, 2013. "Assessing alternative solutions to carbon leakage," Energy Economics, Elsevier, vol. 36(C), pages 299-311.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:hohpro:338 is not listed on IDEAS
    2. repec:old:wpaper:338 is not listed on IDEAS
    3. Lakatos, Csilla & Walmsley, Terrie, 2011. "Dispute Settlement at the WTO: Impacts of a No Deal in the US-Brazil Cotton Dispute," Conference papers 332059, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. 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.
    5. Böhringer, Christoph & Garcia-Muros, Xaquin & Cazcarro, Ignacio & Arto, Iñaki, 2017. "The efficiency cost of protective measures in climate policy," Energy Policy, Elsevier, vol. 104(C), pages 446-454.
    6. Boehringer Christoph & Fischer Carolyn & Rosendahl Knut Einar, 2010. "The Global Effects of Subglobal Climate Policies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-35, December.
    7. Monjon, Stéphanie & Quirion, Philippe, 2011. "Addressing leakage in the EU ETS: Border adjustment or output-based allocation?," Ecological Economics, Elsevier, vol. 70(11), pages 1957-1971, September.
    8. Fischer, Carolyn & Fox, Alan K., 2012. "Comparing policies to combat emissions leakage: Border carbon adjustments versus rebates," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 199-216.
    9. Frédéric Branger, Philippe Quirion, Julien Chevallier, 2017. "Carbon Leakage and Competitiveness of Cement and Steel Industries Under the EU ETS: Much Ado About Nothing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    10. Jos Sijm, 2012. "Tradable Carbon Allowances: The Experience of the European Union and Lessons Learned," Chapters, in: Chin Hee Hahn & Sang-Hyop Lee & Kyoung-Soo Yoon (ed.), Responding to Climate Change, chapter 3, Edward Elgar Publishing.
    11. Barry Anderson & Corrado Di Maria, 2011. "Abatement and Allocation in the Pilot Phase of the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(1), pages 83-103, January.
    12. Venmans, Frank, 2012. "A literature-based multi-criteria evaluation of the EU ETS," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(8), pages 5493-5510.
    13. Martin, Ralf & Muûls, Mirabelle & de Preux, Laure B. & Wagner, Ulrich J., 2014. "On the empirical content of carbon leakage criteria in the EU Emissions Trading Scheme," Ecological Economics, Elsevier, vol. 105(C), pages 78-88.
    14. Zhang, Zhong Xiang, 2012. "Competitiveness and Leakage Concerns and Border Carbon Adjustments," International Review of Environmental and Resource Economics, now publishers, vol. 6(3), pages 225-287, December.
    15. E. Allevi & G. Oggioni & R. Riccardi & M. Rocco, 2017. "An equilibrium model for the cement sector: EU-ETS analysis with power contracts," Annals of Operations Research, Springer, vol. 255(1), pages 63-93, August.
    16. Ralf Martin & Mirabelle Mu?ls & Laure B. de Preux & Ulrich J. Wagner, 2014. "Industry Compensation under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme," American Economic Review, American Economic Association, vol. 104(8), pages 2482-2508, August.
    17. Kuik, Onno & Hofkes, Marjan, 2010. "Border adjustment for European emissions trading: Competitiveness and carbon leakage," Energy Policy, Elsevier, vol. 38(4), pages 1741-1748, April.
    18. Caron, Justin, 2012. "Estimating carbon leakage and the efficiency of border adjustments in general equilibrium — Does sectoral aggregation matter?," Energy Economics, Elsevier, vol. 34(S2), pages 111-126.
    19. Frondel, Manuel & Schmidt, Christoph M. & aus dem Moore, Nils, 2012. "Marktwirtschaftliche Energiewende: Ein Wettbewerbsrahmen für die Stromversorgung mit alternativen Technologien. Ein Projekt im Auftrag der Initiative Neue Soziale Marktwirtschaft," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 69954.
    20. Mohamed Amine Boutabba & Sandrine Lardic, 2017. "EU Emissions Trading Scheme, competitiveness and carbon leakage: new evidence from cement and steel industries," Annals of Operations Research, Springer, vol. 255(1), pages 47-61, August.
    21. Nicole A. MATHYS & Jaime DE MELO, 2010. "Trade and Climate Change: The Challenges Ahead," Working Papers P14, FERDI.
    22. Meunier, Guy & Ponssard, Jean-Pierre & Quirion, Philippe, 2014. "Carbon leakage and capacity-based allocations: Is the EU right?," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 262-279.

    More about this item

    Keywords

    unilateral climate policy design; leakage; competitiveness;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:old:dpaper:338. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catharina Schramm (email available below). General contact details of provider: https://edirc.repec.org/data/fwoldde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.