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A Numerical Investigation of the Potential for Negative Emissions Leakage

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  • Niven Winchester
  • Sebastian Rausch

Abstract

Emissions restrictions in one region may decrease emissions elsewhere (negative leakage), as increased demand for capital and labor to abate emissions in constrained regions may reduce output in unconstrained regions. We investigate leakage in computable general equilibrium (CGE) models under alternative fossil fuel supply elasticity values and factor mobility assumptions. We find that fossil fuel supply elasticities must be equal or close to infinity to generate net negative leakage. As empirical estimates for fossil fuel supply elasticities are less than 1, we conclude that leakage estimates from CGE models are unlikely to be negative.

Suggested Citation

  • Niven Winchester & Sebastian Rausch, 2013. "A Numerical Investigation of the Potential for Negative Emissions Leakage," American Economic Review, American Economic Association, vol. 103(3), pages 320-325, May.
    • Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:320-25
    Note: DOI: 10.1257/aer.103.3.320
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    References listed on IDEAS

    as
    1. Kathy Baylis & Don Fullerton & Daniel H. Karney, 2014. "Negative Leakage," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(1), pages 51-73.
    2. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
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    Cited by:

    1. Christoph Böhringer & Carsten Helm, 2023. "The Reverse Waterbed Effect of Sector Coupling — Unilateral Climate Policies and Multilateral Emissions Trading," CESifo Working Paper Series 10362, CESifo.
    2. Birur, Dileep & Lal, Pankaj & Levin, Todd & Zhou, Zhi & Wolde, Bernabas & Wieczerak, Taylor & Thimmapuram, Prakash, 2022. "Fostering Green Economy in New Jersey under the aegis of Regional Greenhouse Gas Initiative," Conference papers 333434, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Bauer, Nico & Bosetti, Valentina & Hamdi-Cherif, Meriem & Kitous, Alban & McCollum, David & Méjean, Aurélie & Rao, Shilpa & Turton, Hal & Paroussos, Leonidas & Ashina, Shuichi & Calvin, Katherine & Wa, 2015. "CO2 emission mitigation and fossil fuel markets: Dynamic and international aspects of climate policies," Technological Forecasting and Social Change, Elsevier, vol. 90(PA), pages 243-256.
    4. Jakob, Michael, 2021. "Climate policy and international trade – A critical appraisal of the literature," Energy Policy, Elsevier, vol. 156(C).
    5. Deng Yue & Apurbo Sarkar & Yu Cui & Lu Qian & Zhao Minjuan & Jiban Chandro Das, 2021. "Ecological compensation of grain trade within urban, rural areas and provinces in China: a prospect of a carbon transfer mechanism," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(11), pages 16688-16712, November.
    6. Kathy Baylis & Don Fullerton & Daniel H. Karney, 2014. "Negative Leakage," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(1), pages 51-73.
    7. Wilman, Elizabeth A., 2019. "Market Redirection Leakage in the Palm Oil Market," Ecological Economics, Elsevier, vol. 159(C), pages 226-234.
    8. Michael Jakob & Jan Christoph Steckel & Ottmar Edenhofer, 2014. "Consumption- Versus Production-Based Emission Policies," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 297-318, October.
    9. Grischa Perino, 2015. "Climate Campaigns, Cap and Trade, and Carbon Leakage: Why Trying to Reduce Your Carbon Footprint Can Harm the Climate," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(3), pages 469-495.
    10. Brigitte Knopf & Nicolas Koch & Godefroy Grosjean & Sabine Fuss & Christian Flachsland & Michael Pahle & Michael Jakob & Ottmar Edenhofer, 2014. "The European Emissions Trading System (EU ETS): Ex-Post Analysis, the Market Stability Reserve and Options for a Comprehensive Reform," Working Papers 2014.79, Fondazione Eni Enrico Mattei.
    11. Y.-H. Henry Chen & Hossein Hosseini Jebeli & Craig Johnston & Sergey Paltsev & Marie-Christine Tremblay, 2023. "An Investigation into the Effects of Border Carbon Adjustments on the Canadian Economy," Staff Working Papers 23-27, Bank of Canada.
    12. Holladay, J. Scott & Mohsin, Mohammed & Pradhan, Shreekar, 2018. "Emissions leakage, environmental policy and trade frictions," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 95-113.
    13. John E. T. Bistline & James Merrick & Victor Niemeyer, 2020. "Estimating Power Sector Leakage Risks and Provincial Impacts of Canadian Carbon Pricing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(1), pages 91-118, May.
    14. Tan, Xiujie & Liu, Yu & Cui, Jingbo & Su, Bin, 2018. "Assessment of carbon leakage by channels: An approach combining CGE model and decomposition analysis," Energy Economics, Elsevier, vol. 74(C), pages 535-545.
    15. Bin Fan & Yun Zhang & Xiuzhen Li & Xiao Miao, 2019. "Trade Openness and Carbon Leakage: Empirical Evidence from China’s Industrial Sector," Energies, MDPI, vol. 12(6), pages 1-16, March.

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    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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