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Carbon Leakage Revisited : Unilateral Climate Policy with Directed Technical Change

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  • Di Maria, C.

    (Tilburg University, Center For Economic Research)

  • van der Werf, E.H.

    (Tilburg University, Center For Economic Research)

Abstract

The increase in carbondioxide emissions by some countries in reaction to an emission reduction by countries with climate policy (carbon leakage) is seen as a serious threat to unilateral climate policy.Using a two-country model where only one of the countries enforces an exogenous cap on emissions, this paper analyzes the effect of technical change that can be directed towards the clean or dirty input, on carbon leakage.We show that, as long as technical change cannot be directed, there will always be carbon leakage through the standard terms-of-trade effect.However, once we allow for directed technical change, a counterbalancing induced technology effect arises and carbon leakage will generally be lower.Moreover, we show that when the relative demand for energy is sufficiently elastic, carbon leakage may be negative: the technology effect induces the unconstrained region to voluntarily reduce its own emissions.

Suggested Citation

  • Di Maria, C. & van der Werf, E.H., 2005. "Carbon Leakage Revisited : Unilateral Climate Policy with Directed Technical Change," Discussion Paper 2005-68, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:c8756098-b27e-4895-8743-dbe799f35040
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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