open access publication

Article, 2023

Carbon leakage in a small open economy: The importance of international climate policies

In: Energy Economics, ISSN 0140-9883, Volume 117, 10.1016/j.eneco.2022.106447

Contributors (3)

Beck U. [1] Kruse-Andersen P.K. (0000-0002-0378-9321) (Corresponding author) [2] Stewart L.B. [3]

Affiliations

  1. [1] Kraka
  2. [NORA names: Miscellaneous; Denmark; Europe, EU; Nordic; OECD]
  3. [2] University of Copenhagen
  4. [NORA names: KU University of Copenhagen; University; Denmark; Europe, EU; Nordic; OECD]
  5. [3] Danish Research institute for Economic Analysis and Modelling (DREAM)
  6. [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

Funders

  • Danish Environmental Economic Conference
  • Department of Food and Resource Economics, University of Copenhagen
  • Potsdam Research Seminar in Economics
  • Department of Economics
  • Danish Economic Councils
  • Sveriges Lantbruksuniversitet