Addressing the concerns about carbon leakage in the implementation of carbon pricing policies: a focus on the issue of c
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Addressing the concerns about carbon leakage in the implementation of carbon pricing policies: a focus on the issue of competitiveness Florian Rey1,2 · Thierry Madiès3,4 Received: 18 December 2019 / Revised: 3 April 2020 / Accepted: 17 April 2020 © Associazione Amici di Economia e Politica Industriale 2020
Abstract This article investigates whether the implementation of asymmetric carbon pricing policies leads to carbon leakage. We first present the theoretical mechanisms behind carbon leakage. Secondly, we conduct a review of the existing empirical results of carbon leakage. We focus on the competitiveness channel and therefore rely on papers analysing the effects of asymmetric carbon prices on both trade and investment flows. Lastly, we discuss solutions to reduce carbon leakage, so that acceptability towards ambitious carbon pricing policies can be maximized. Keywords Carbon leakage · Competitiveness · Climate policy JEL Classification Q54 · Q58
This article is based on the master thesis presented by F. Rey in July 2019 at the university of Fribourg and the university of Tampere: “Improving acceptability towards ambitious carbon pricing: problems and possible solutions”. The views expressed in this article are solely those of the author and do not reflect the official policy or position of those two agencies. * Thierry Madiès [email protected] 1
State Secretariat for Economic Affairs (SECO) Americas Unit, Bern, Switzerland
2
Finance Department of the Canton of Fribourg, Fribourg, Switzerland
3
Department of Economics, University of Fribourg, 90 Boulevard de Pérolles, 1700 Fribourg, Switzerland
4
Faculty of Economics and Management, Swiss Distant Learning University, Brig, Switzerland
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Vol.:(0123456789)
Journal of Industrial and Business Economics
1 Introduction In the recent years, the urgency to reduce carbon emissions in order to tackle climate change has been acknowledged by numerous scientific reports published by the Intergovernmental Panel on Climate Change (IPCC). This scientific consensus has led to growing public concerns about environmental issues, which in fine was reflected in many public elections. The federal elections held in October 2019 in Switzerland testified of this trend: Out of the 200 seats at the National Council, Greens gathered 28 seats (+17), becoming the fourth largest represented political party in this chamber. Reducing carbon emissions will require effective and efficient policy instruments. Among all available policy instruments, economic instruments (carbon pricing, which includes both carbon taxes and cap-and-trade mechanisms) have been recognized as the most cost-efficient tool to reduce carbon emissions (Perman et al. 2003, pp. 202–238). Despite a “near-universal agreement among economists” that carbon pricing is needed to lower carbon emissions at a reasonable cost (Parry et al. 2015, p. xxv), most countries remain reluctant to apply carbon-pricing policies. When looking at the findings from Métivier et al. (2017), it appears that only 25% of the
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