Induced Innovation and Carbon Leakage

Jonathon Becker, Jared Carbone () and Andreas Loeschel ()
Additional contact information
Jared Carbone: Department of Economics and Business, Colorado School of Mines
Andreas Loeschel: Ruhr University Bochum
Authors registered in the RePEc Author Service: Andreas Löschel

No 2022-04, Working Papers from Colorado School of Mines, Division of Economics and Business

Abstract: We explore the ability of unilateral climate policies to induce innovation and diffusion of technology and its impacts on carbon leakage. We consider both energy-saving and carbon-saving (end-of-pipe) technologies, such as carbon capture and storage (CCS). To do so, we combine a computable general equilibrium (CGE) model of North-South trade with assumptions about R&D-based technological change to simulate counterfactual climate policies in the North. We model both a carbon tax and a carbon tariff levied on imports from South to North. Both policies drive an increase in R&D in carbon-saving technologies which comes primarily at the expense of investment in other sectors. Carbon-saving technology allows the North to meet its carbon reduction target without abating as much fossil fuel use, leaving demand and international prices for fossil fuels closer to pre-policy levels. Reduced R&D in energy and energy-intensive sectors raises the cost of production in these sectors. Both effects mitigate carbon leakage in the South. Technology diffusion to the South has a modest effect on leakage under the carbon tax. It leads to somewhat larger reductions in leakage when the cap is paired with carbon tariffs, as the tariffs provide an incentive for the South to adopt carbon-saving technologies developed in the North.

Keywords: induced innovation; R&D; carbon leakage; carbon tariffs; carbon tax; carbon cap; technology diffusion; knowledge spillovers; computable general equilibrium (search for similar items in EconPapers)
JEL-codes: C68 F10 O30 Q43 Q55 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2022-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-ino, nep-int and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://econbus-papers.mines.edu/working-papers/wp202204.pdf First version, 2022 (application/pdf)

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