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Carbon Leakage: A Medium- and Long-Term View

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  • Florian Habermacher

Abstract

Future market developments determine the fate of fossil fuel carbon currently conserved unilaterally. Dynamic fuel depletion naturally suggests leakage rates approaching 100%. Reasons for lower leakage differ from what limits rates in previous studies. Discounting reduces present-value leakage as global emissions are delayed. Containing climate change requires future global political or technological breakthroughs to conserve some carbon forever. Early breakthroughs limit leakage but with late breakthroughs most unilateral emission reductions may be negated abroad. Future coal liquefaction suggests negative leakage rates for current mitigation, but a perfect backstop allows leakage above unity. Leakage rates and suggested taxes vary across fuels.

Suggested Citation

  • Florian Habermacher, 2015. "Carbon Leakage: A Medium- and Long-Term View," CESifo Working Paper Series 5216, CESifo.
    • Handle: RePEc:ces:ceswps:_5216
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    2. Florian Habermacher, 2016. "Externalities in Risky Resource Markets - Optimal Taxes, Leakage and Divestment," CESifo Working Paper Series 5865, CESifo.

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    More about this item

    Keywords

    unilateral climate policy; emission impulse response; fossil fuel depletion; dynamic carbon leakage; discounting; fuel specific carbon tax; coal liquefaction; backstop; OECD;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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