Supply‐ Versus Demand‐Side Policies in the Presence of Carbon Leakage and the Green Paradox

28 Pages Posted: 28 Jan 2019

See all articles by Cathrine Hagem

Cathrine Hagem

Center for International Climate and Environmental Research (CICERO)

Halvor Briseid Storr⊘sten

Statistics Norway

Date Written: January 2019

Abstract

We consider a climate coalition that seeks to reduce global emissions in the presence of carbon leakage and resource exhaustibility. We show that a credible announcement of future unilateral supply‐side policies delays foreign emissions, and we derive the optimal combination of consumer taxes and producer taxes when we consider leakages from free riders, both within periods and across periods. The tax shares generally differ over time. A decline in the present value of the social cost of carbon over time supports a time path where the consumers’ tax share of the total carbon tax also declines over time. We illustrate our findings with a numerical model.

Keywords: Carbon leakage, climate coalition, demand‐side climate policy, green paradox, supply‐side climate policy

Suggested Citation

Hagem, Cathrine and Storr⊘sten, Halvor Briseid, Supply‐ Versus Demand‐Side Policies in the Presence of Carbon Leakage and the Green Paradox (January 2019). The Scandinavian Journal of Economics, Vol. 121, Issue 1, pp. 379-406, 2019. Available at SSRN: https://ssrn.com/abstract=3322816 or http://dx.doi.org/10.1111/sjoe.12277

Cathrine Hagem (Contact Author)

Center for International Climate and Environmental Research (CICERO) ( email )

P.O. Box 1129 Blindern
Oslo, N-0317
Norway

Halvor Briseid Storr⊘sten

Statistics Norway

N-0033 Oslo
Norway

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