The Effects of Domestic Climate Change Measures on International Competitiveness

10 Pages Posted: 4 Jun 2010

See all articles by Hiau Looi Kee

Hiau Looi Kee

World Bank - Development Research Group (DECRG)

Hong Ma

Tsinghua University - School of Economics & Management

Muthukumara Mani

World Bank

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Abstract

Under the Kyoto Protocol, industrialised countries (called Annex I countries) have to reduce their combined emissions to 5 per cent below 1990 levels in the first commitment period of 2008–12. Efforts to reduce emissions to meet Kyoto targets and beyond have raised issues of competitiveness in countries that are implementing these policies, as well as fear of leakage of carbon-intensive industries to non-implementing countries. This has also led to proposals for tariff or border tax adjustments to offset any adverse impact of capping CO emissions. In this paper we examine the implications of climate change policies such as carbon tax and energy efficiency standards on competitiveness across industries, as well as issues related to leakage, if any, of carbon-intensive industries to developing countries. Though competitiveness issues have been much debated in the context of carbon taxation policies, the study finds no evidence that industries’ competitiveness is affected by carbon taxes. In fact, the analysis suggests that exports of most energy-intensive industries increase when a carbon tax is imposed by the exporting countries, or by both importing and exporting countries. This finding gives credence to the initial assumption that recycling the taxes back to the energy-intensive industries by means of subsidies and exemptions may be overcompensating for the disadvantage to those industries. There is, however, no conclusive evidence that supports relocation (leakage) of carbon-intensive industries to developing countries due to stringent climate change policies.

Suggested Citation

Kee, Hiau Looi and Ma, Hong and Mani, Muthukumara, The Effects of Domestic Climate Change Measures on International Competitiveness. World Economy, Vol. 33, No. 6, pp. 820-829, June 2010, Available at SSRN: https://ssrn.com/abstract=1619066 or http://dx.doi.org/10.1111/j.1467-9701.2010.01286.x

Hiau Looi Kee (Contact Author)

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

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Hong Ma

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Muthukumara Mani

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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