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Carbon Leakage with Structural Gravity


  • Aichele, Rahel


The future international climate policy architecture will most likely consist of partial climate policy initiatives like the EU's Emission Trading System. Trade integration threatens to undermine these systems' environmental effectiveness by shifting emissions to other countries. We estimate a gravity model based on 103 countries and use it to simulate several such climate policy experiments. The model's parameters are structurally linked to empirical estimates, i.e. bilateral trade costs and the elasticity of substitution are consistent with the data. Unlike previous empirical work, the approach allows to quantify emission relocation in general equilibrium. With trade liberalization experiments, the model also allows to deliver a perspective on environmental aspects of hypothetical FTA formation. We find that an EU emission allowance price of 15 US-$ suffi ces to bring the EU on track for its Kyoto target but also leads to emission relocations of about 10% of the EU's emission savings.

Suggested Citation

  • Aichele, Rahel, 2013. "Carbon Leakage with Structural Gravity," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80011, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:80011

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    References listed on IDEAS

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    Cited by:

    1. Larch, Mario & Wanner, Joschka, 2017. "Carbon tariffs: An analysis of the trade, welfare, and emission effects," Journal of International Economics, Elsevier, vol. 109(C), pages 195-213.

    More about this item

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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