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Vertical Targeting and Leakage in Carbon Policy

Author

Listed:
  • James B. Bushnell
  • Erin T. Mansur
Abstract
This paper examines the intersection between two aspects of climate policy design. The first is the point of regulation: should it be placed on pollution sources, carbon-rich inputs, or consumers? The second aspect concerns the external effects of a local climate policy. Leakage occurs when partial regulation results in an increase in emissions in unregulated parts of the economy. Our model demonstrates how directly regulating polluters can increase foreign emissions while indirect regulation (either upstream or downstream of the pollution source) will decrease foreign emissions. The net effect on combined domestic and foreign emissions will depend on market elasticities.

Suggested Citation

  • James B. Bushnell & Erin T. Mansur, 2011. "Vertical Targeting and Leakage in Carbon Policy," American Economic Review, American Economic Association, vol. 101(3), pages 263-267, May.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:263-67
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.263
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    References listed on IDEAS

    as
    1. Erin T. Mansur, 2011. "Upstream versus Downstream Implementation of Climate Policy," NBER Chapters, in: The Design and Implementation of US Climate Policy, pages 179-193, National Bureau of Economic Research, Inc.
    2. Frankel, Jeffrey, 2008. "Global Environmental Policy and Global Trade Policy," Working Paper Series rwp08-058, Harvard University, John F. Kennedy School of Government.
    3. Meredith L. Fowlie, 2009. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 72-112, August.
    4. Hobbs, Benjamin F. & Bushnell, James & Wolak, Frank A., 2010. "Upstream vs. downstream CO2 trading: A comparison for the electricity context," Energy Policy, Elsevier, vol. 38(7), pages 3632-3643, July.
    5. James Bushnell & Carla Peterman & Catherine Wolfram, 2008. "Local Solutions to Global Problems: Climate Change Policies and Regulatory Jurisdiction," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 175-193, Summer.
    6. Fischer, Carolyn & Fox, Alan K., 2009. "Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates," RFF Working Paper Series dp-09-02, Resources for the Future.
    Full references (including those not matched with items on IDEAS)

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