Can a unilateral carbon tax reduce emissions elsewhere?

Joshua Elliott and Don Fullerton ()

Resource and Energy Economics, 2014, vol. 36, issue 1, 6-21

Abstract: One country or sector that tries to reduce greenhouse gas emissions may fear that other countries or sectors will get a competitive advantage and increase emissions. Computable general equilibrium (CGE) models such as Elliott et al. (2010a, 2010b) indicate that 15–25% of abatement might be offset by this “leakage.” Yet the Fullerton et al. (2012) simple two-sector analytical general equilibrium model shows an offsetting term with negative leakage. In this paper, we use a full CGE model with many countries and many goods to measure effects in a way that allows for this negative leakage term. We vary elasticities of substitution and confirm the analytical model's prediction that whether this negative leakage term offsets the positive leakage terms depends on the ability of consumers to substitute into the untaxed good relative to the ability of firms to substitute from carbon emissions into labor or capital.

Keywords: Climate policy; Greenhouse gas emissions; Leakage; Abatement resource effect; Terms of trade effect (search for similar items in EconPapers)
JEL-codes: F18 H23 Q27 Q48 Q54 Q56 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Can a Unilateral Carbon Tax Reduce Emissions Elsewhere? (2013)
Working Paper: Can a Unilateral Carbon Tax Reduce Emissions Elsewhere? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:36:y:2014:i:1:p:6-21

DOI: 10.1016/j.reseneeco.2013.11.003

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