Unilateral Climate Policy: Can OPEC Resolve the Leakage Problem?

28 Pages Posted: 1 Apr 2013

See all articles by Christoph Böhringer

Christoph Böhringer

University of Oldenburg - Economic Policy; Centre for European Economic Research (ZEW)

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Jan Schneider

University of Oldenburg; ZenTra - Center for Transnational Studies

Date Written: March 30, 2013


In the abscence of a global agreement to reduce greenhouse gas emissions, individual countries have introduced national climate policies. Unilateral action involves the risk of relocating emissions to regions without climate regulations, i.e., emission leakage. A major channel for leakage are price changes in the international oil market. Previous studies on leakage have assumed competitive behaviour in this market. Here, we consider alternative assumptions about OPEC’s behaviour in order to assess how these affect leakage and costs of unilateral climate policies. Our results based on simulations with a large-scale computable general equilibrium model of the global economy suggest that assumptions on OPEC’s behaviour are crucial to the impact assessment of unilateral climate policy measures. We find that leakage through the oil market may become negative when OPEC is perceived as a dominant producer, thereby reducing overall leakage drastically compared to a setting where the oil market is perceived competitive.

Keywords: Carbon Leakage, Oil Market, OPEC Behaviour

JEL Classification: C72, Q41, Q54

Suggested Citation

Bohringer, Christoph and Rosendahl, Knut Einar and Schneider, Jan, Unilateral Climate Policy: Can OPEC Resolve the Leakage Problem? (March 30, 2013). USAEE Working Paper No. 13-121. Available at SSRN: https://ssrn.com/abstract=2242240 or http://dx.doi.org/10.2139/ssrn.2242240

Christoph Bohringer

University of Oldenburg - Economic Policy ( email )

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
+49 6211235200 (Phone)
+49 6211235226 (Fax)

Knut Einar Rosendahl (Contact Author)

Norwegian University of Life Sciences ( email )

PO Box 5033
NO-1432 Aas
+47 64966117 (Phone)

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
+47 21094954 (Phone)
+47 21094963 (Fax)

Jan Schneider

University of Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, DE D-26111

ZenTra - Center for Transnational Studies ( email )

Ammerländer Heerstraße 138
Oldenburg, 26131

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