Article,
Carbon leakage in a small open economy: The importance of international climate policies
Affiliations
- [1] Kraka [NORA names: Miscellaneous; Denmark; Europe, EU; Nordic; OECD];
- [2] University of Copenhagen [NORA names: KU University of Copenhagen; University; Denmark; Europe, EU; Nordic; OECD];
- [3] Danish Research institute for Economic Analysis and Modelling (DREAM) [NORA names: Miscellaneous; Denmark; Europe, EU; Nordic; OECD]
Abstract
A substantial literature investigates carbon leakage effects for large countries and climate coalitions. However, little is known about leakage effects for a small open economy within a climate coalition. To fill this gap in the literature, we incorporate international climate policies relevant for a small open EU economy into the general equilibrium model GTAP-E. We focus our analysis on Denmark, but we show that our framework can be applied to any EU economy. We find substantial leakage associated with an economy-wide COe tax. This result is strongly affected by EU climate policies. We also present sector-specific leakage rates and find large sectoral differences.
Keywords
Carbon leakage,
Climate policy,
Computable general equilibrium,
Trade and the environment