Data Entry: Please note that the research database will be replaced by UNIverse by the end of October 2023. Please enter your data into the system https://universe-intern.unibas.ch. Thanks
Optimal containment and policy differentiation under unilateral climate policy
Journal
Canadian journal of economics
Volume
44
Number
3
Pages / Article-Number
814-837
Keywords
Climate Policy, International Trade, Distortions, Carbon Leakage, Policy Differentiation
Abstract
Without a broad international agreement, climate policy is less effective due to carbon leakage. We investigate whether this negative effect can be addressed by partially containing the policy’s effects to intermediate goods sectors, such as electricity or transportation services. We use a three-sector model to study a policy that taxes emissions caused by intermediate goods production while subsidizing the intermediate good. We characterize the optimal containment policy for combating carbon leakage and show that it complements the concept of policy differentiation.