Can a unilateral carbon tax reduce emissions elsewhere?

Joshua Elliott, Don Fullerton

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)6-21
Number of pages16
JournalResource and Energy Economics
Volume36
Issue number1
DOIs
StatePublished - Jan 2014

Keywords

  • Abatement resource effect
  • Climate policy
  • Greenhouse gas emissions
  • Leakage
  • Terms of trade effect

ASJC Scopus subject areas

  • Economics and Econometrics

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