Working Paper: NBER ID: w18898
Authors: Kathy Baylis; Don Fullerton; Daniel H. Karney
Abstract: We extend the model of Fullerton, Karney, and Baylis (2012 working paper) to explore cost-effectiveness of unilateral climate policy in the presence of leakage. We ignore the welfare gain from reducing greenhouse gas emissions and focus on the welfare cost of the emissions tax or permit scheme. Whereas that prior paper solves for changes in emissions quantities and finds that leakage may be negative, we show here that all cases with negative leakage in that model are cases where a unilateral carbon tax results in a welfare loss. With positive leakage, however, a unilateral policy can improve welfare.
Keywords: No keywords provided
JEL Codes: Q27; Q28; Q56; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unilateral carbon tax policies (H23) | negative leakage (D62) |
| negative leakage (D62) | welfare loss (D69) |
| higher carbon taxes in one sector (H23) | total emissions (Q54) |
| higher leakage (L15) | welfare (I38) |
| relative levels of tax in both sectors (H29) | welfare cost per ton of emission reduction (D61) |
| unilateral carbon tax (H23) | welfare (I38) |
| unilateral carbon tax addressing consumption distortions (H23) | welfare (I38) |