Unilateral climate change mitigation, carbon leakage and competitiveness: an application to the European Union

International Journal of Global Warming

Volumn 1, Issue 4, 2009, Pages 405-417

  Barker, Terry ^a   Scrieciu, S Şerban ^a  

^a UNIVERSITY OF CAMBRIDGE   (United Kingdom)

Author keywords

competitiveness; global warming; leakage; unilateral climate action

Indexed keywords

EID: 78649838442     PISSN: 17582083     EISSN: 17582091     Source Type: Journal    
DOI: 10.1504/IJGW.2009.029212     Document Type: Article

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33. Carbon leakage is measured by taking the increase in CO2 emissions outside the country or region taking domestic mitigation action and then dividing by the reduction in the emissions of the country or region. It is an important measure because there are concerns about the effectiveness of unilateral action since there is potential for carbon-intensive production to migrate outside the EU.
34. CGE models typically assume a global social planner to maximise welfare, full information over space and time, perfect competition and identical firms in each sector, homogenous composite energy-intensive goods, relocation of production without extra costs, and increasing returns included in only one sector.
35. The assumption of the representative agent, commonly adopted in equilibrium models, is that the behaviour of an economic group is adequately represented by that of a group, each of whose members have the identical characteristics of the average of the group. Barker and de-Ramon (2006) test this assumption and show that parameter estimates of the effects of technological change on industrial employment for 18 regions of Europe are significantly different across industries and regions. In other word, the assumption that each industry has the same responses as an average (borrowed from the literature) is not justified and misleading.
36. The estimations of E3MG’s export equations “protect against both spurious correlations (by using cointegration techniques) and the simultaneity between the dependent and the explanatory variables (by using instrumental variables or some other means)” (Barker et al., 2006, p.245).
37. The advantages of using this combined approach for climate change mitigation analysis have been reviewed in Grubb et al. (2002).
38. Other measures refer, for example, to extra investments in the vehicles fleet through regulatory measures, which is treated separately from other sectors. Otherwise, the stabilisation target is achieved through global ETS through permit auctioning for the energy sector, where revenues raised by each region are spent within each of the corresponding region, whereas for the non-energy sectors a carbon tax is applied, again assuming revenue recycling. The revenue recycling is designed to maintain macroeconomic inflation neutrality by reductions in average indirect taxes.
39. Long- run price homogeneity is assumed in E3MG.