Intermediate Input Linkage and Carbon Leakage

35 Pages Posted: 25 Oct 2016

See all articles by Zengkai Zhang

Zengkai Zhang

Tianjin University - College of Management and Economics

ZhongXiang Zhang

Tianjin University - Ma Yinchu School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 25, 2016

Abstract

Climate regulations tend to target energy intensive sectors whose products are widely used in industrial production as intermediate inputs, such as electricity, and the carbon abatement may be partially offset by intermediate input-led leakage. This paper aims to examine the impact of intermediate input linkage on the carbon leakage both theoretically and empirically. On the theoretical part, we develop a Harberger-type model with an input-output linkage structure, identify four leakage effects and derive closed-form solutions for these leakage effects. On the empirical part, we build a computable general equilibrium model of China for empirical simulation and introduce Structural Decomposition Analysis to link both the theoretical and empirical models. By imposing a carbon price on the electricity generation sector, our results show significant carbon leakage. Our decomposition analysis further suggests that such a leakage is mainly through the production substitution effect, followed by the multiplier effect. Both of the two effects are closely related to the intermediate input linkage, and thus shed some light on importance of considering sectoral linkage when discussing the carbon leakage issue of climate policies.

Keywords: Carbon Leakage, Sectoral Linkage, Climate Regulation, General Equilibrium Model, Production Substitution Effect, Multiplier Effect

JEL Classification: Q55, Q58, Q43, Q48, O13, O31, O33, O44, F18

Suggested Citation

Zhang, Zengkai and Zhang, ZhongXiang, Intermediate Input Linkage and Carbon Leakage (October 25, 2016). FEEM Working Paper No. 062.2016. Available at SSRN: https://ssrn.com/abstract=2858794 or http://dx.doi.org/10.2139/ssrn.2858794

Zengkai Zhang

Tianjin University - College of Management and Economics ( email )

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

ZhongXiang Zhang (Contact Author)

Tianjin University - Ma Yinchu School of Economics ( email )

92 Weijin Road, Nankai District
Tianjin 300072
China
+86 22 87370560 (Phone)

HOME PAGE: http://ideas.repec.org/f/pzh243.html

Register to save articles to
your library

Register

Paper statistics

Downloads
16
Abstract Views
247
PlumX Metrics