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Subglobal carbon policy and the competitive selection of heterogeneous firms

Edward Balistreri () and Thomas F. Rutherford

Energy Economics, 2012, vol. 34, issue S2, S190-S197

Abstract: We analyze subglobal action to mitigate climate change with a consideration of recent advances in the theory of international trade. Subglobal action impacts emissions in unconstrained countries (carbon leakage) through international trade channels. Consequently, estimates of the efficacy of subglobal action, tariffs on embodied carbon, and the distribution of policy costs will be sensitive to the assumed structure of international trade. While most climate-policy models rely on an Armington (1969) structure of international trade, recent empirical evidence supports a new theory suggested by Melitz (2003). We find significant quantitative and qualitative differences when we consider the Melitz trade structure. These differences are important as an alternative, and arguably more plausible, representation of how trade and border adjustments interact with climate policy.

Keywords: Carbon leakage; New trade theory; Climate policy; Border adjustments (search for similar items in EconPapers)
JEL-codes: F12 F18 Q54 Q56 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:34:y:2012:i:s2:p:s190-s197

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