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Even a cost-effective climate policy will increase the prices faced by producers (and consumers) across sectors of the U.S. economy. These costs give rise to two particular concerns. The first is of the ability of U.S. producers to compete against foreign suppliers operating in countries where emissions do not carry similar costs, especially in trade-sensitive, energy-intensive sectors.
The second is that domestic regulatory costs can lead U.S. production to shift abroad to unregulated foreign firms, and the resulting emissions leakage would undermine the environmental benefits of the policy. Besides reducing stringency or granting exemptions to vulnerable industries, competitiveness concerns can be addressed through a variety of policies, including allocating free allowances to firms as incentive to maintain production and trade-related approaches like border tax adjustments.
Further Reading
Carbon Policies, Competitiveness, and Emissions Leakage: An International Perspective
Carolyn Fischer, Eric Moore, Richard D. Morgenstern, Toshi Arimura
Conference Summary, April 2010
Competitiveness, Emissions Leakage, and Climate Policy
Carolyn Fischer and Richard Morgenstern
Weekly Policy Commentary, February 23, 2009
Addressing Competitiveness Concerns in the Context of a Mandatory Policy for Reducing U.S. Greenhouse Gas Emissions
Richard D. Morgenstern
Assessing U.S. Climate Policy Options
Issue Brief # 8
Competitiveness Impacts of Carbon Dioxide Pricing Policies on Manufacturing
Richard D. Morgenstern, Joseph E. Aldy, Evan M. Herrnstadt, Mun Ho,
and William A. Pizer
Assessing U.S. Climate Policy Options
Issue Brief #7
Impact of Carbon Price Policies on U.S. Industry
Mun Ho, Richard D. Morgenstern, Jhih-Shyang Shih
Discussion Paper 08-37
Output-Based Allocations of Emissions Permits: Efficiency and Distributional Effects in a General Equilibrium Setting with Taxes and Trade
Carolyn Fischer and Alan Fox
Discussion Paper 04-37 |