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Robust Policies against Emission Leakage: The Case for Upstream Subsidies

Author

Listed:
  • Carolyn Fischer
  • Mads Greaker
  • Knut Einar Rosendahl
Abstract
Asymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage, which hampers countries’ welfare. In order to limit leakage, governments consider supporting domestic trade exposed firms by subsidizing their investments in abatement technology. The suppliers of such technologies tend to be less than perfectly competitive, particularly when both emissions regulations and advanced tech-nologies are new. In this context of twin market failures, we consider the relative effects and desirability of subsidies for abatement technology. We find a more robust recommendation for upstream subsidies than for downstream subsidies. Downstream subsidies tend to increase global abatement technology prices, reduce pollution abatement abroad and increase emission leakage. On the contrary, upstream subsidies reduce abatement technology prices, and hence also emissions leakage. Moreover, as opposed to downstream subsidies, they provide domestic abatement technology firms with a strategic advantage.

Suggested Citation

  • Carolyn Fischer & Mads Greaker & Knut Einar Rosendahl, 2014. "Robust Policies against Emission Leakage: The Case for Upstream Subsidies," CESifo Working Paper Series 4742, CESifo.
    • Handle: RePEc:ces:ceswps:_4742
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp4742.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bougette, Patrice & Charlier, Christophe, 2015. "Renewable energy, subsidies, and the WTO: Where has the ‘green’ gone?," Energy Economics, Elsevier, vol. 51(C), pages 407-416.
    2. Carolyn Fischer, 2017. "Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 553-575, March.
    3. Charnovitz, Steve & Fischer, Carolyn, 2015. "Canada–Renewable Energy: Implications for WTO Law on Green and Not-So-Green Subsidies," World Trade Review, Cambridge University Press, vol. 14(2), pages 177-210, April.
    4. Fischer, Carolyn & Greaker, Mads & Rosendahl, Knut Einar, 2018. "Strategic technology policy as a supplement to renewable energy standards," Resource and Energy Economics, Elsevier, vol. 51(C), pages 84-98.
    5. Huiying Ye & Qi Zhang & Xunzhang Pan & Arash Farnoosh, 2020. "Market-induced carbon leakage in China’s certified emission reduction projects," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 25(6), pages 987-1012, August.
    6. Carolyn Fischer, 2016. "Strategic Subsidies for Green Goods," Working Papers 2016.30, Fondazione Eni Enrico Mattei.
    7. Jacobsen, Grant D., 2015. "Do energy prices influence investment in energy efficiency? Evidence from energy star appliances," Journal of Environmental Economics and Management, Elsevier, vol. 74(C), pages 94-106.

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    More about this item

    Keywords

    strategic environmental policy; carbon leakage; abatement technology;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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