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. 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.
    3. 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.
    4. Riley, C J, 1980. " The Wage-Price Mechanism and the Long-run Effects of Fiscal and Monetary Policies under Alternative Exchange Rate Regimes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 82(3), pages 332-351.
    5. Rossi, Vanessa, et al, 1986. "Exchange Rates, Productivity and International Competitiveness," Oxford Review of Economic Policy, Oxford University Press, vol. 2(3), pages 56-73, Autumn.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. Jenkins, Rhys, 1998. "Environmental Regulation and International Competitiveness: A Review of Literature and Some European Evidence," UNU-INTECH Discussion Paper Series 01, United Nations University - INTECH.
    13. Stephan Danninger & Fred Joutz, 2008. "What Explains Germany's Rebounding Export Market Share?," CESifo Economic Studies, CESifo, vol. 54(4), pages 681-714, December.
    14. 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.
    15. 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.
    16. 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.
    17. Francis Vitek, 2009. "An Assessment of External Price Competitiveness for Mozambique," IMF Working Papers 09/165, International Monetary Fund.
    18. 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.
    19. 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.
    20. 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.
    21. 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.
    22. Peltonen, Tuomas & 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.
    23. 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.
    24. Manne, Alan S. & Barreto, Leonardo, 2004. "Learn-by-doing and carbon dioxide abatement," Energy Economics, Elsevier, vol. 26(4), pages 621-633, July.
    25. David Dollar & Edward N. Wolff, 1993. "Competitiveness, Convergence, and International Specialization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262041359, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    unilateral climate policy design; leakage; competitiveness;

    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.

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

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.