Climate change policies, international trade and carbon leakage

Curbing the emissions of carbon dioxide has become a major political challenge for the coming decades. The political feasibility of the enterprise is hampered by global disagreement over the preferred level of abatement and its distribution across countries. Because of the close connection between carbon dioxide emissions and fossil fuel use, countries that want to pursue a more restrictive policy worry that their energy-intensive industries will suffer from international competition from industries in countries that follow a laxer policy. Abating countries will see their reduction efforts be offset to some extent by increasing emissions in non-abating countries, while income and employment leak away to those countries. Against this background, this book examines the links between climate change policies, international trade, and carbon leakage by means of an applied general equilibrium model of the world economy. The analysis should help professionals in the area of international climate change policies to get a better understanding of the trade linkages and help them to design better policies.