The efficiency cost of protective measures in climate policy

Christoph Böhringer, Xaquin Garcia-Muros, Ignacio Cazcarro and Iñaki Arto

Energy Policy, 2017, vol. 104, issue C, 446-454

Abstract: Despite recent achievements towards a global climate agreement, climate action to reduce greenhouse gas emissions remains quite heterogeneous across countries. Energy-intensive and trade-exposed (EITE) industries in industrialized countries are concerned on stringent domestic emission pricing that puts them at a competitive disadvantage against producers of similar goods in other countries with more lenient emission regulation. This paper focuses on climate policy design in the United States of America (US) and compares the economic implications of four alternative protective measures for US EITE industries: (i) output-based rebates, (ii) exemptions from emission pricing, (iii) energy intensity standards, and (iv) carbon intensity standards. Using a large-scale computable general equilibrium model we quantify how these protective measures affect competitiveness of US EITE industries. We find that protective measures can improve common trade-related competitiveness indicators such as revealed comparative advantage or relative world trade shares but at the same time may lead to a decline in the output value for EITE industries because of negative income effects. The economy-wide cost of emission abatement under protective measures increase as compared to uniform emission pricing stand-alone such that the gains of protective measures for EITE exports may be more than compensated through losses in domestic EITE demand.

Keywords: Unilateral climate policy; Competitiveness; Computable general equilibrium (search for similar items in EconPapers)
JEL-codes: D21 D58 H23 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Working Paper: The Efficiency Cost of Protective Measures in Climate Policy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:104:y:2017:i:c:p:446-454

DOI: 10.1016/j.enpol.2017.01.007

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