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Carbon leakage under incomplete environmental regulation: An industry-level approach

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  • Robert A. Ritz
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    Abstract

    Carbon leakage is a major concern for policymakers involved with environmental initiatives such as the European Union's emissions trading scheme and similar cap-and-trade proposals in the United States, Australia, and elsewhere.� This paper provides a framework for understanding the drives underlying carbon leakage at the level of an individual sector in which only a subset of firms is covered by such regulation.� It provides simple formulae to estimate leakage rates using information on industry characteristics that is typically available to the analyst.� Illustrative estimates for the steel industry in the EU ETS suggest carbon leakage of 25-30% or (much) higher - unless environmental-efficiency improvements by regulated firms are substantial.

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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper461.pdf
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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 461.

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    Date of creation: 01 Nov 2009
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    Handle: RePEc:oxf:wpaper:461
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    Keywords: Abatement; Cap-and-trade; Carbon tax; Cost pass-through; Emissions trading; Free allocation; Market structure;

    Find related papers by JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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    18. Ghemawat, Pankaj, 1993. "Commitment to a Process Innovation: Nucor, USX, and Thin-Slab Casting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(1), pages 135-61, Spring.
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    Cited by:

    1. Sheldon, Ian & McCorriston, Steve, 2014. "Climate Policy and Border Measures: The Case of the US Aluminum Industry," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169544, Agricultural and Applied Economics Association.
    2. Dieter Helm & Cameron Hepburn & Giovanni Ruta, 2012. "Trade, climate change, and the political game theory of border carbon adjustments," Oxford Review of Economic Policy, Oxford University Press, vol. 28(2), pages 368-394, SUMMER.
    3. Robert w. Hahn & Robert A. Ritz, 2013. "Does the social Cost of Carbon Matter?: An Assessment of U.S. Policy," Cambridge Working Papers in Economics 1346, Faculty of Economics, University of Cambridge.
    4. Robert Hahn & Robert Ritz, 2014. "Optimal Altruism in Public Good Provision," Cambridge Working Papers in Economics 1403, Faculty of Economics, University of Cambridge.
    5. Gabriela Michalek & Reimund Schwarze, 2014. "Carbon Leakage: Pollution, Trade or Politics?," Discussion Paper Series RECAP15 12, RECAP15, European University Viadrina, Frankfurt (Oder).
    6. Ian Sheldon & Steve McCorriston, 2012. "Climate policy and border tax adjustments: Might industrial organization matter?," EconoQuantum, Revista de Economia y Negocios, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 9(2), pages 7-28, Julio-Dic.
    7. Svetlana Batrakova, 2012. "Does industry concentration matter for pollution haven effects?," GRI Working Papers 90, Grantham Research Institute on Climate Change and the Environment.

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