The Competitiveness Impacts of Climate Change Mitigation Policies

Duke Environmental Economics Working Paper No. 12-01

44 Pages Posted: 20 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: January 1, 2012

Abstract

The pollution haven hypothesis suggests that unilateral domestic emission mitigation policies could cause adverse “competitiveness” impacts on domestic manufacturers as they lose market share to foreign competitors and relocate production activity – and emissions – to unregulated economies. We construct a precise definition of competitiveness impacts appropriate for climate change regulation that can be estimated exclusively with domestic production and net import data. We use this definition and a 20 year panel of 400 U.S. manufacturing industries to estimate the effects of energy prices, which is in turn used to simulate the impacts of carbon pricing policy. We find that a U.S.-only $15 per ton CO2 price will cause competitiveness effects on the order of a 1.0 to 1.3 percent decline in production among the most energy-intensive manufacturing industries. This amounts to roughly one-third of the total impact of a carbon pricing policy on these firms’ economic output.

JEL Classification: Q54, Q52, F18

Suggested Citation

Aldy, Joseph E. and Pizer, William A., The Competitiveness Impacts of Climate Change Mitigation Policies (January 1, 2012). Duke Environmental Economics Working Paper No. 12-01. Available at SSRN: https://ssrn.com/abstract=1988500 or http://dx.doi.org/10.2139/ssrn.1988500

Joseph E. Aldy (Contact Author)

Harvard Kennedy School

79 JFK Street
Cambridge, MA 02138
United States
617-496-7213 (Phone)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/joseph-aldy

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future

79 JFK Street
Cambridge, MA 02138
United States
617-496-7213 (Phone)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/joseph-aldy

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

79 John F. Kennedy Street
Cambridge, MA 02138
United States

William A. Pizer

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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