Capacity decisions with demand fluctuations and carbon leakage

Choix d'investissement, variation de la demande et fuite de carbone

Guy Meunier and Jean-Pierre Ponssard

Post-Print from HAL

Abstract: For carbon-intensive, internationally-traded industrial goods, a unilateral increase in the domestic CO2 price may result in the reduction of the domestic production but an increase of imports. In such sectors as electricity, cement and steel, the trade flows result more from short-term regional disequilibria between supply and demand than from international competition. This paper formalizes this empirical observation and characterizes its impact on carbon leakage. Domestic firms invest in domestic plants under uncertain domestic demand conditions; then, as uncertainty unfolds, they may supply the domestic market from their domestic plants or from imports. We prove that there would be no leakage in the short term (without capacity adjustment) but that there would be in the long term (with capacity adjustment). Furthermore the larger the uncertainty, the larger the leakage. We also characterize the impact of uncertainty on the (short and long term) pass-through rates of the carbon price. In the concluding section we discuss the implications of these results for the evaluation of climate policies.

Keywords: carbon leakage; investment; uncertainty; environmental economics (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Published in Resource and Energy Economics, 2014, 36 (2), pp.436-454. ⟨10.1016/j.reseneeco.2014.01.005⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Capacity decisions with demand fluctuations and carbon leakage (2014)
Working Paper: Capacity Decisions with Demand Fluctuations and Carbon Leakage (2014)
Working Paper: Capacity decisions with demand fluctuations and carbon leakage (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02632588

DOI: 10.1016/j.reseneeco.2014.01.005

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().