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Supply‐ versus Demand‐Side Policies in the Presence of Carbon Leakage and the Green Paradox
Author(s) -
Hagem Cathrine,
Storrøsten Halvor Briseid
Publication year - 2019
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12277
Subject(s) - carbon leakage , economics , carbon tax , leakage (economics) , supply side , greenhouse gas , demand side , microeconomics , value (mathematics) , natural resource economics , monetary economics , emissions trading , macroeconomics , ecology , machine learning , computer science , biology
We consider a climate coalition that seeks to reduce global emissions in the presence of carbon leakage and resource exhaustibility. We show that a credible announcement of future unilateral supply‐side policies delays foreign emissions, and we derive the optimal combination of consumer taxes and producer taxes when we consider leakages from free riders, both within periods and across periods. The tax shares generally differ over time. A decline in the present value of the social cost of carbon over time supports a time path where the consumers’ tax share of the total carbon tax also declines over time. We illustrate our findings with a numerical model.