The Competence Centre for International Economics Research (FIW) kindly invites to participate in the Seminar in International Economics on the topic
Trade, Firm-Delocation, and Optimal Climate Policy
Ahmad Lashkaripour
(Indiana University)
Literature: https://alashkar.pages.iu.edu/FL2020_Climate_Policy.pdf
Thursday, 21st of January 2021, 4:00 p.m. (CET)
Registration link: https://my.demio.com/ref/dBpcEhy15KvsmpcJ
The participation link will be sent to you immediately after registration.
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Description:
To what extent can trade policy help reduce global carbon emissions? We examine this question using a multi-country multi-industry general equilibrium trade model with transboundary carbon externalities. Our framework accommodates firm-delocation in response to policy, multi-lateral carbon leakage, and returns to scale in production and abatement. Our central result is a set of simple formulas for unilaterally optimal trade and carbon taxes in an open economy. The optimal policy consists of (i) a uniform carbon tax across all industries; (ii) industry-level production subsidies that restore marginal-cost-pricing independent of the industry’s carbon intensity; (iii) industry-level import taxes that penalize carbon-intensive imports but less so in high-returns-to-scale industries; and (vi) industry-level export subsidies that, in addition to improving the terms of trade, promote clean exports against carbon-intensive foreign competition. Mapping our formulas to data, we find that trade taxes can replicate only around 3% of the carbon reduction attainable under (first-best) cooperative global carbon taxes. This lack of effectiveness is partly driven by a tension between the carbon-reducing and terms-of-trade rationales for trade taxation under scale economies. Trade taxes, however, can be remarkably effective at enforcing international climate agreements even in the presence of scale economies and firm-delocation effects.
The seminar series is organised by the Vienna Institute for International Economic Studies (wiiw) in co-operation with FIW, the Centre of Competence in International Economics. The seminar provides a forum for presentation and discussion of recent academic research in the field of international economics.
