This project aims at quantifying the effectiveness and efficiency of unilateral CO2 emission reduction policies when producers are internationally mobile. Theoretical research highlights the possibility of carbon leakage, i.e., lower emissions in one country are offset by higher emissions elsewhere as production relocates to countries with weaker regulations. This possibility has led economists (Paul Krugman) or politicians (Nicolas Sarkozy) to call for border adjustment taxes. Whether such policy action is indeed justified depends on the empirical relevance of the carbon leakage phenomenon. However, econometric evidence is scarce, mostly because of data problems. Different countries have enacted very different carbon policies so that international comparison is difficult. Moreover, the empirical link between the international mobility of firms and the implied amount of relocated emissions requires the development of appropriate models and the availability of detailed harmonized input-output (I/O) tables, sectoral production and emission data. The first stage of the project concentrates on data. We strive to provide a comprehensive paneldata set of bilateral trade in CO2 as embodied in trade flows on the sector level and at estimating policy-induced CO2 abatement costs. Stages 2 and 3 relate to the use of these data. We decompose observed changes of carbon emissions into a trade, a scale, and a technology effect. Moving beyond descriptive statistics, we want to estimate the causal effect of carbon policies in a gravity model of trade.
Input-output analysis Panel data analysis Program evaluation
OECD input-output tables, UN COMTRADE database, OECD STAN database, UN System of National Accounts, UNIDO INDSTAT4, IEA CO2 Emissions from Fuel Combustion, GTAP
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