Negative LeakageJournal of the Association of Environmental and Resource Economists (2014)
AbstractOur analytical general equilibrium model solves for effects of a small increase in carbon tax on leakage – the increase in emissions elsewhere. Identical consumers buy two goods using income from endowments that are mobile between sectors. Usually an increase in one sector’s tax raises output price, so consumption shifts to the other good, causing positive leakage. Here, we find a new negative effect not recognized in existing literature: the taxed sector substitutes away from carbon into clean inputs, so it may absorb resources, shrink the other sector, and reduce their emissions. This “abatement resource effect” can offset most or all of the positive effect. We show this effect can substantially affect estimates of leakage and is robust to model extensions.
- pollution haven,
- trade and environment,
- carbon pricing
Citation InformationKathy Baylis, Don Fullerton and Daniel Karney. "Negative Leakage" Journal of the Association of Environmental and Resource Economists Vol. 1 Iss. 1 (2014)
Available at: http://works.bepress.com/don_fullerton/61/