Carbon Emission Leakages: A General Equilibrium View

OECD Working Paper No. 242

34 Pages Posted: 11 Aug 2000

See all articles by Joaquim Oliveira Martins

Joaquim Oliveira Martins

Organization for Economic Co-Operation and Development (OECD) - Statistics Directorate (STD); University Paris-Dauphine; Public Governance Directorate

Jean-Marc Burniaux

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: May 2000

Abstract

In December 1997, a number of countries - referred to as the Annex 1 countries - signed the Kyoto Protocol under which they agreed to ceilings on their emissions of greenhouse gases (GHGs). Such unilateral action by a group of countries has often been criticized on the grounds that it could be undermined by the existence of so-called "carbon leakages". Carbon leakage refers to the possible rise of GHG emissions in countries that do not participate in a carbon abatement coalition. This paper provides a discussion of the key mechanisms and factors underlying the size of carbon leakages. To this aim, we use a two-region, two-final goods simplified CGE framework, incorporating three types of fossil fuels (coal, oil and low-carbon energy), international trade and capital mobility. This framework was designed to make extensive, multidimensional sensitivity analysis tractable. Indeed, a wide range of alternative assumptions and parameterisations would have been difficult or even impossible to simulate and interpret with a large general equilibrium (GE) model. Amongst different determinants of carbon leakages, the results suggest that the supply elasticity of coal plays a critical role. The degree of product differentiation of manufactured goods and the international capital mobility appear as relatively less influential. The shape of the production function also matters, a fact that has attracted little attention so far. Our analysis also suggests that the level of leakage rates is low within the range of parameters provided in the literature and corresponding to the ones embodied, for example, in the OECD GREEN model.

JEL Classification: D58, Q32, Q43

Suggested Citation

Oliveira Martins, Joaquim and Burniaux, Jean-Marc, Carbon Emission Leakages: A General Equilibrium View (May 2000). OECD Working Paper No. 242. Available at SSRN: https://ssrn.com/abstract=228535 or http://dx.doi.org/10.2139/ssrn.228535

Joaquim Oliveira Martins (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Statistics Directorate (STD) ( email )

2 Rue André Pascal
75775 Paris Cedex 16
France
+33 1 45 24 88 53 (Phone)

University Paris-Dauphine ( email )

PARIS
France

Public Governance Directorate ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Jean-Marc Burniaux

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

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