The Competitiveness Impacts of Climate Change Mitigation Policies

39 Pages Posted: 31 Dec 2011 Last revised: 2 Jan 2012

See all articles by Joseph E. Aldy

Joseph E. Aldy

Harvard Kennedy School; National Bureau of Economic Research; Resources for the Future; Harvard University - Harvard Kennedy School (HKS)

William A. Pizer

Duke University

Multiple version iconThere are 2 versions of this paper

Date Written: December 2011

Abstract

The pollution haven hypothesis suggests that unilateral domestic climate change mitigation policy would impose significant economic costs on carbon-intensive industries, resulting in declining output and increasing net imports. In order to evaluate this hypothesis, we undertake a two-step empirical analysis. First, we use historic energy prices as a proxy for climate change mitigation policy. We estimate how production and net imports change in response to energy prices using a 35-year panel of approximately 450 U.S. manufacturing industries. Second, we take these estimated relationships and use them to simulate the impacts of changes in energy prices resulting from a domestic climate change mitigation policy that effectively imposes a $15 per ton carbon price. We find that energy-intensive manufacturing industries are more likely to experience decreases in production and increases in net imports than less-intensive industries. Our best estimate is that competitiveness effects – measured by the increase in net imports – are as large as 0.8 percent for the most energy-intensive industries and represent no more than about one-sixth of the estimated decrease in production under a $15 per ton carbon price.

Suggested Citation

Aldy, Joseph E. and Pizer, William A., The Competitiveness Impacts of Climate Change Mitigation Policies (December 2011). NBER Working Paper No. w17705. Available at SSRN: https://ssrn.com/abstract=1977756

Joseph E. Aldy (Contact Author)

Harvard Kennedy School

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National Bureau of Economic Research

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Resources for the Future

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Harvard University - Harvard Kennedy School (HKS) ( email )

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William A. Pizer

Duke University ( email )

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Durham, NC 27708-0204
United States

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