We consider a two-country model of price competition, with one polluting firm in each country and differentiated products. Assuming away, to simplify, abatement efforts and input substitution, we compare the impact on output, leakages, and trade volumes of a carbon tax versus an emission standard policy, unilaterally enacted by the home country. Under the tax the two firms set their prices simultaneously, in a Bertrand game. Under the standard the home firm’s price is conditioned on the price of the foreign firm, so as to abide the emission constraint. As a result, the tax leads to higher leakages and global emissions than the standard. The standard also implies a better trade balance for the home country than the tax.

Carbon Tax, Emission Standards, and Carbon Leak Under Price Competition / P. Garella, M.T. Trentinaglia. - In: ENVIRONMENTAL & RESOURCE ECONOMICS. - ISSN 0924-6460. - 72:4(2019 Apr), pp. 941-964. [10.1007/s10640-018-0234-z]

Carbon Tax, Emission Standards, and Carbon Leak Under Price Competition

P. Garella
Primo
;
M.T. Trentinaglia
Ultimo
2019

Abstract

We consider a two-country model of price competition, with one polluting firm in each country and differentiated products. Assuming away, to simplify, abatement efforts and input substitution, we compare the impact on output, leakages, and trade volumes of a carbon tax versus an emission standard policy, unilaterally enacted by the home country. Under the tax the two firms set their prices simultaneously, in a Bertrand game. Under the standard the home firm’s price is conditioned on the price of the foreign firm, so as to abide the emission constraint. As a result, the tax leads to higher leakages and global emissions than the standard. The standard also implies a better trade balance for the home country than the tax.
carbon leakage; carbon tax; emission standards: trade balance; price competition
Settore SECS-P/01 - Economia Politica
Settore SECS-P/02 - Politica Economica
Settore SECS-P/06 - Economia Applicata
apr-2019
15-mar-2018
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/570824
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