Now showing 1 - 2 of 2
  • Publication
    Announced climate policy and the order of resource use
    (Irish Economic Association, 2009-04) ;
    In this paper we study the optimal extraction of two fossil fuels when the economy faces an announced constraint on CO2 emissions a la Kyoto. When high- and low-carbon resources are perfect substitutes, announcement of climate policy induces substitution towards the high-carbon input whenever this resource is abundant. Emissions can then increase at the instant of announcement when the future constraint is not too tight, and the period between announcement and implementation of climate policy is long enough. We present data that suggest that this effect might have occurred in the German electricity industry after announcement of the European Union Emissions Trading Scheme.
  • Publication
    Carbon leakage revisited : unilateral climate policy with directed technical change
    (Tilburg University. Center for Economic Research, 2005-05) ;
    The increase in carbon dioxide emissions by some countries in reaction to an emission reduction by countries with climate policy (carbon leakage) is seen as a serious threat to unilateral climate policy. Using a two-country model where only one of the countries enforces an exogenous cap on emissions, this paper analyzes the effect of technical change that can be directed towards the clean or dirty input, on carbon leakage. We show that, as long as technical change cannot be directed, there will always be carbon leakage through the standard terms-of-trade effect. However, once we allow for directed technical change, a counterbalancing induced technology effect arises and carbon leakage will generally be lower. Moreover, we show that when the relative demand for energy is sufficiently elastic, carbon leakage may be negative: the technology effect induces the unconstrained region to voluntarily reduce its own emissions.