Can Degrowth Overcome the Leakage Problem of Unilateral Climate Policy

40 Pages Posted: 20 Sep 2017

See all articles by Mario Larch

Mario Larch

University of Bayreuth - Faculty of Law, Business and Economics; University of Bayreuth; CESifo; Ifo Institute for Economic Research; GEP at the University of Nottingham; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Markus Löning

University of Bayreuth

Joschka Wanner

University of Bayreuth

Date Written: September 06, 2017

Abstract

Unilateral climate policy suffers from carbon leakage, i.e. the (partial) offset of the initial emission reduction by increases in other countries. Different than most typically discussed climate policies, degrowth not only aims at reducing the fossil fuel use in an economy, but rather at a reduction of all factor inputs, which may lead to different leakage implications. We conduct the first investigation of degrowth in a multi-country setting in order to (i) compare the leakage effects of national pure emission reduction policies to degrowth scenarios, (ii) identify underlying channels by decomposing the implied emission changes into scale, composition, and technique effects, and (iii) investigate which country characteristics determine degrowth’s relative effectiveness to overcome the leakage problem. Using a structural gravity model, we find that degrowth indeed significantly reduces leakage by keeping the sectoral composition of the country more stable and reducing uncommitted countries’ incentives to shift towards more energy-intensive production techniques. The higher effectiveness of degrowth in reducing carbon emissions is most pronounced for small and trade-open economies with comparatively clean production technologies.

Keywords: degrowth, climate policy, gravity model, carbon leakage

JEL Classification: F180, Q540, Q570

Suggested Citation

Larch, Mario and Löning, Markus and Wanner, Joschka, Can Degrowth Overcome the Leakage Problem of Unilateral Climate Policy (September 06, 2017). CESifo Working Paper Series No. 6633. Available at SSRN: https://ssrn.com/abstract=3039344

Mario Larch (Contact Author)

University of Bayreuth - Faculty of Law, Business and Economics ( email )

Universitätsstraße 30
Bayreuth, 95447
Germany
0049 / (0) 921 - 55 6240 (Phone)

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

CESifo ( email )

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Munich, DE-81679
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Ifo Institute for Economic Research ( email )

Poschinger Str. 5
Munich, 01069
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GEP at the University of Nottingham ( email )

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United Kingdom

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

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Paris Cedex 15, F-75015
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Markus Löning

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Joschka Wanner

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

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