Francesca Sanna-Randaccio paper - The Business School

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The condition for global pollution to rise is t I s t II b b II I , which is not too restrictive as PR requires moderate market asymmetry. 33 By comparing Eqs (20) and (25) we find that the emission leakage is always greater with PR than with NR. The sign of the impact on consumers’ aggregate welfare is undetermined. The sum of consumers’ surplus and the carbon tax revenue is given by PR ~ PR ~ t I t II 2AI 11t I 3t II 8s ( AII t II 2s) ( CSˆ I CS I ) ( Tˆ I TI ) t II (26) 6 3bI 3bII which for t 0 is positive, although lower than in the no strategy shift case. II However, as world production may increase, and thus pollution damage may grow, we cannot say what will be the overall impact on consumer aggregate welfare. The change in damage is given by: ( Dˆ PR I ~ I s ( t I t II ) 4AI t I 3t II 2s 4AII 4t II s DI ) 6 bII bI 3bI 3bII which with b b is positive as under this assumption overall emissions increase. bI II Firm 1 profits fall in the domestic market but rise abroad, furthermore the firm faces additional fixed costs. We thus have: PR ~ 4 ( AII t II s) ( AI t I s) ( ˆ 1 1) s ( t I t II ) G1, f (28) 9 bII bI As to the overall welfare impact, assuming b b and t 0 we have: ( Wˆ PR I ~ W ) I 1 18b bI II I 3tI( 2AI t I ) 8s( AII s) ( s t I )( 4AI 4AII t I 3s) G1, f Therefore the sufficient condition for a fall in welfare becomes: II (27) (29) b 3t( 2A t ) 8s( A s) ( s t )( 4A 4A t 3s) 0 b I I II I I I II I I (30) As expected, a high value of I enhances the negative effect on welfare (since with b b world pollution increases). bI II To summarize, an unilateral environmental policy shifting the equilibrium to PR may lead to higher global emissions. It is thus possible that, when transport costs are very high and the 20
market asymmetry is limited, an unilateral carbon tax may fail to achieve its primary task. In addition, the carbon tax revenue is also limited, as now production in country I is aimed only to serve the local market, thus the sign of consumer aggregate welfare is undetermined. The model shows that, contrary to what generally stated, 34 transport costs may rise the probability of carbon leakage. Although transport costs favour domestic production to serve the home market, they may also encourage the domestic producer to supply the foreign market via FDI instead of export, thus possibly leading to a high degree of carbon leakage. We have: 6.3 The TR equilibrium outcome When the equilibrium shifts to TR, global emissions decrease as world production falls. 35 ˆ TR ~ s s ( Q W QW ) 0 (31) 3b I 3bII Consumer aggregate welfare is likely to fall. As all production is moved abroad, the change in carbon tax revenue is negative. We thus obtain: ( CSˆ TR I ~ ˆ TR ~ CS I ) ( TI TI ) s 4 A 4 3 I t II s t 6 3bI while the change in damage is given by II ( A ) ( 2 ) I t II s AII t II s 0 3bI 3bI ˆ TR ~ 1 1 4 4 3 4 4 I AI t II s AII t II s ( DI DI ) s( ) 0 6 bI bII 3bI 3bII Thus, if we consider bI bII b , then ˆ TR ~ ( D I DI ) 0 and consumers’ aggregate welfare will certainly decrease, given Eq. (32). Variable profits due to domestic sales fall more than the increase in variable profits due to foreign sales, and furthermore there may be an increase in fixed costs. We have: TR ~ 4 ( A ) ( ) I t II AII t II s ˆ 1 1) s ( G1, f G1 h ) 0 (34) 9 bI bII ( , The overall effect on welfare, when bI bII b and thus ˆ TR ~ ( D DI ) 0 , is equal to: I (32) (33) 21
Page 1 and 2: The impact of unilateral climate po
Page 3 and 4: A related, although less policy-ori
Page 5 and 6: Furthermore, the net effect on welf
Page 7 and 8: will undertake a market-oriented FD
Page 9 and 10: ( a c 2s 2t t ) ( a c t ) G
Page 11 and 12: TR PR 4 ˆ 1 ˆ 1 s( t I t
Page 13 and 14: the influence of transport costs, w
Page 15 and 16: 4.4 Market size and plant costs asy
Page 17 and 18: ( s ( t I t II ) ), all three out
Page 19: Proposition VI The introduction of
Page 23 and 24: Two sets of provisions to moderate
Page 25 and 26: identifying vulnerable sectors are
Page 27 and 28: coefficients vary across regions. T
Page 29 and 30: Appendix B Short-term boundary cond
Page 31 and 32: References Abe K, Zhao L (2005) End
Page 33 and 34: Mani M, Wheeler D (1997). In search
Page 35: Table 1 The impact of a unilateral
Page 38 and 39: 2005). As suggested by Mulatu, et a
Page 40: 38 Out of the nearly 500 six-digit

Francesca Sanna-Randaccio paper - The Business School

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