Francesca Sanna-Randaccio paper - The Business School

( Wˆ
TR
I
1
18b
~
W )
I
s( 12A
8A
5s
4t
) 6t
( A A 2t
s)
( G G ) 0
I
II
II
II
I
Motta and Thisse (1994) found that welfare could increase with the introduction of an
unilateral carbon tax leading to TR, in contrast with our findings. However their model differs
from ours in various respects. Firstly, they consider local instead of global pollution. In our model,
damage (which is related to global output) either does not decrease (when considering
b b ) or decreases less than in the local pollution case. Furthermore in their analysis,
bI II
before t I is introduced, there is no price of emissions in country I, and thus when production shifts
abroad, there is no loss of carbon tax revenue. That too implies a more positive effect on country I
welfare.
To summarize, an unilateral environmental policy, when it does induce a shift of
equilibrium to total relocation, may have some effect in containing global emissions. Furthermore
carbon revenue falls substantially as all domestic production is moved abroad, and as a
consequence consumers’ aggregate welfare shrinks. Thus the net effect on welfare is likely to be
negative. This is the worst scenario in terms of the job leakage as all production will be undertaken
in the foreign market.
7. Implications as to carbon leakage provisions in EU and US climate policies
US legislation on climate change policy is still under examination. The American Clean
Energy and Security Act, known as the Waxman-Markey Bill, was approved by the House of
Representatives in June 2009 (HR 2454), and the Kerry-Lieberman American Power Act has been
presented at the Senate in May 2010. The Waxman-Markey Bill 36 establishes quantitative criteria
for identifying which manufacturing industries are “energy-intensive and trade-exposed (EITE)”,
thus presumably eligible for special provisions. They are: 1) energy intensity (or carbon intensity)
is at least 5 percent and trade intensity is at least 15 percent 37 or 2) energy intensity (or carbon
intensity) is at least 20 percent, regardless of the trade intensity. 38
II
II
1,
f
1,
h
(35)
22