Unilateral environmental policy and offshoring

Simon J. Bolz, Fabrice Naumann and Philipp Richter ()

No 02/24, CEPIE Working Papers from Technische Universität Dresden, Center of Public and International Economics (CEPIE)

Abstract: Expanding on a general equilibrium model of offshoring, we analyze the effects of a unilateral emissions tax increase on the environment, income, and inequality. Heterogeneous firms allocate labor across production tasks and emissions abatement, while only the most productive can benefit from lower labor and/or emissions costs abroad and offshore. We find a non-monotonic effect on global emissions, which decline if the initial difference in emissions taxes is small. For a sufficiently large difference, global emissions rise, implying emissions leakage of more than 100%. The underlying driver is a global technique effect: While the emissions intensity of incumbent non-offshoring firms declines, the cleanest firms start offshoring. Moreover, offshoring firms become dirtier, induced by a reduction in the foreign effective emissions tax in general equilibrium. Implementing a BCA prevents emissions leakage, reduces income inequality in the reforming country, but raises inequality across countries.

Keywords: Offshoring; Emissions leakage; Environmental policy; BCA; Heterogeneous firms; Income inequality (search for similar items in EconPapers)
JEL-codes: F12 F15 F18 Q58 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ene, nep-env and nep-int
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Related works:
Working Paper: Unilateral Environmental Policy and Offshoring (2024)
Working Paper: Unilateral environmental policy and offshoring (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tudcep:294834

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