Can Global De-Carbonization Inhibit Developing-Country Industrialization?

38 Pages Posted: 2 Dec 2009

See all articles by Aaditya Mattoo

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Arvind Subramanian

International Monetary Fund (IMF); Center for Global Development

Dominique van der Mensbrugghe

World Bank

Jianwu He

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: November 10, 2009

Abstract

Most economic analyses of climate change have focused on the aggregate impact on countries of mitigation actions. We depart first in disaggregating the impact by sector, focusing particularly on manufacturing output and exports because of the potential growth consequences. Second, we decompose the impact of an agreement on emissions reductions into three components: the change in the price of carbon due to each country’s emission cuts per se; the further change in this price due to emissions tradability; and the changes due to any international transfers (private and public). Manufacturing output and exports in low carbon intensity countries such as Brazil are not adversely affected. In contrast, in high carbon intensity countries, such as China and India, even a modest agreement depresses manufacturing output by 6-7 percent and manufacturing exports by 9-11 percent. The increase in the carbon price induced by emissions tradability hurts manufacturing output most while the Dutch disease effects of transfers hurt exports most. If the growth costs of these structural changes are judged to be substantial, the current policy consensus, which favors emissions tradability (on efficiency grounds) supplemented with financial transfers (on equity grounds), needs re-consideration.

Keywords: trade, environment, climate change, emissions trading

JEL Classification: F13, F18, H23, Q56

Suggested Citation

Mattoo, Aaditya and Subramanian, Arvind and van der Mensbrugghe, Dominique and He, Jianwu, Can Global De-Carbonization Inhibit Developing-Country Industrialization? (November 10, 2009). Available at SSRN: https://ssrn.com/abstract=1516052 or http://dx.doi.org/10.2139/ssrn.1516052

Aaditya Mattoo (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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Arvind Subramanian

International Monetary Fund (IMF) ( email )

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Center for Global Development

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Dominique Van der Mensbrugghe

World Bank ( email )

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HOME PAGE: http://econ.worldbank.org/staff/dvandermensbrugghe

Jianwu He

World Bank

1818 H Street, NW
Washington, DC 20433
United States

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