Working Paper: NBER ID: w15899
Authors: Christoph Bhringer; Andreas Lange; Thomas F. Rutherford
Abstract: Carbon control policies in OECD countries commonly differentiate emission prices in favor of energy-intensive industries. While leakage provides a efficiency argument for differential emission pricing, the latter may be a disguised beggar-thy-neighbor policy to exploit terms of trade. Using an optimal tax framework, we propose a method to decompose the leakage motive and the terms-of-trade motive for emission price differentiation. We illustrate our method with a quantitative impact assessment of unilateral climate policies for the U.S. and EU economies. We conclude in these instances that complex optimal emission price differentiation does not substantially reduce the overall economic costs of carbon abatement compared with a simple rule of uniform emission pricing.
Keywords: emission pricing; international spillovers; leakage; terms-of-trade
JEL Codes: D58; H21; Q43; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| differential emission pricing (D49) | overall economic costs of carbon abatement (Q52) |
| leakage concerns (F32) | second-best emission price reductions for energy-intensive industries (Q52) |
| energy channel (Q40) | leakage effects (F32) |
| energy channel (Q40) | terms-of-trade effects (F16) |
| differential pricing (D49) | strategic exploitation of terms-of-trade (F14) |
| international energy market adjustments (Q41) | overall economic cost of abatement (Q52) |