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Addressing Competitiveness and Carbon Leakage Impacts Arising from Multiple Carbon Markets
A Modelling Assessment
- Elisa Lanzi1, Damian Mullaly2, Jean Château1, Rob Dellink1
- Author Affiliations
- 1: OECD, France
- 2: The Treasury, Australia
- 11 sep 2013
- Bibliographic information
This paper examines the macroeconomic and sectoral competitiveness and carbon leakage impacts associated with a range of stylised mitigation policy scenarios. The scenarios reflect different depictions of carbon markets in terms of their level of linkages, their coverage (i.e. number of countries participating, types of gases and sectors) and the stringency of the carbon pricing policy across countries. The paper also investigates some policies to address competitiveness and carbon leakage issues. The analysis considers border carbon adjustments (BCAs) as well as direct and indirect (offset-based) linking of carbon markets.
The results show that in presence of multiple carbon markets, competitiveness can decrease in countries that undertake climate policies, also leading to carbon leakage. The negative sectoral competitiveness and leakage effects can be reduced when more countries act, more emission sources are covered, and when the climate mitigation policy is harmonised across countries. The results also show that response policies, such as BCAs and linking of carbon markets, can address some, but not all, of the competitiveness and carbon leakage issues. While BCAs are more effective in addressing domestic competitiveness concerns than linking instruments, the latter are better in preserving the welfare of countries that are not undertaking a climate policy.
- competitiveness, climate change, mitigation, computable general equilibrium model, border tax adjustment
- Classification JEL:
- D58: Microeconomics / General Equilibrium and Disequilibrium / Computable and Other Applied General Equilibrium Models
- H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies
- Q54: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Climate; Natural Disasters and Their Management; Global Warming