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Economic effects of differentiated climate action

  • Leszek Kąsek


    (World Bank)

  • Olga Kiuila


    (University of Warsaw, Faculty of Economic Sciences)

  • Krzysztof Wójtowicz


    (UPolish Ministry of Economy, Strategy and Analyses Department)

  • Tomasz Żylicz


    (University of Warsaw, Faculty of Economic Sciences)

We analyze existing definitions of carbon leakage and provide a new rigorous one. This is then tested using computable general equilibrium analysis for unilateral carbon dioxide abatement programs in the EU. Our model of the global economy is disaggregated into three regions. The analysis includes a decomposition of change in carbon emission. While some anti-leakage measures reduce carbon leakage significantly, some of them are less effective. We identified a list of parameters which affect not only the magnitude but also the sign of carbon leakage rate. Manipulating with elasticities of substitution in production function suggests that in reaction to the unilateral action of the EU, the other regions may both increase or decrease their carbon emissions. Even though we are positive about computable general equilibrium models’ application in this policy area, their policy simulations cannot be directly treated as policy recommendations without a careful validation of their assumptions.

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Paper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2012-12.

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Length: 33 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:war:wpaper:2012-12
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  1. 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.
  2. Gernot Klepper & Sonja Peterson, 2005. "Trading Hot-Air. The Influence of Permit Allocation Rules, Market Power and the US Withdrawal from the Kyoto Protocol," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(2), pages 205-228, October.
  3. Aichele, Rahel & Felbermayr, Gabriel, 2012. "Kyoto and the carbon footprint of nations," Munich Reprints in Economics 20163, University of Munich, Department of Economics.
  4. Habla, Wolfgang & Winkler, Ralph, 2013. "Political influence on non-cooperative international climate policy," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 219-234.
  5. Ang, B. W., 2005. "The LMDI approach to decomposition analysis: a practical guide," Energy Policy, Elsevier, vol. 33(7), pages 867-871, May.
  6. Carbone, Jared C. & Helm, Carsten & Rutherford, Thomas F., 2009. "The case for international emission trade in the absence of cooperative climate policy," Journal of Environmental Economics and Management, Elsevier, vol. 58(3), pages 266-280, November.
  7. Kuheli Dutt, 2009. "Governance, institutions and the environment-income relationship: a cross-country study," Environment, Development and Sustainability, Springer, vol. 11(4), pages 705-723, August.
  8. Babiker, Mustafa H., 2005. "Climate change policy, market structure, and carbon leakage," Journal of International Economics, Elsevier, vol. 65(2), pages 421-445, March.
  9. Detlef Vuuren & James Edmonds & Mikiko Kainuma & Keywan Riahi & John Weyant, 2011. "A special issue on the RCPs," Climatic Change, Springer, vol. 109(1), pages 1-4, November.
  10. Enrica De Cian & Massimo Tavoni, 2010. "The Role of International Carbon Offsets in a Second-best Climate Policy: A Numerical Evaluation," Working Papers 2010.33, Fondazione Eni Enrico Mattei.
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