Competitiveness and Climate Policy: Avoiding Leakage of Jobs and Emissions

Mar 18, 2009 | Richard D. Morgenstern
U.S. House of Representatives Committee on Energy and Commerce Subcommittee on Energy and Environment

U.S. industries that rely heavily on energy and face competition from imports would be most vulnerable under a cap-and-trade system to limit greenhouse gas emissions, according to testimony delivered Wednesday by RFF Senior Fellow Richard Morgenstern before a House energy and environment subcommittee.

The hearing on the potential leakage of jobs and carbon emissions under cap-and-trade addressed a broad spectrum of concerns, from foreign trade relations to consumer energy costs.

In his testimony Morgenstern highlighted five points

  • The total economic impacts of proposed climate legislation are relatively small
  • Despite these small impacts, certain energy-intensive and import-sensitive industries are likely to suffer
  • These impacts should decline over time
  • Accurately identifying the most affected industrial segments is not simple
  • Emissions leakage is clearly a long-term problem in certain sectors

He added that flexibility could be built in to a carbon pricing system to ease financial burdens on the most-affected sectors and reduce leakage. He identified the provision of free emission allowances to vulnerable firms based on their output and emissions intensity as a "very attractive option," especially in comparison to the imposition of border taxes or the creation of special exemptions.

Morgenstern's testimony drew from his research with Mun Ho and Jhih-Shyang Shih as well as a recent discussion paper from Carolyn Fischer and Alan Fox

Wednesday's hearing came a day after Energy Secretary Stephen Chu suggested that under a cap-and-trade system the U.S. may need to consider a carbon tariff on imports from countries that lack similar policies.

More from RFF on Competitiveness and Emissions Leakage

Read Morgenstern’s written testimony

Read his recent testimony before the Helsinki Commission on Climate Change and Trade Policy

Read more about Chu's remarks to House Science and Technology Committee: Environmental Capital