Negative Leakage

Don Fullerton (), Daniel Karney and Kathy Baylis

No 17001, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We build a simple analytical general equilibrium model and linearize it, to find a closed-from expression for the effect of a small change in carbon tax on leakage - the increase in emissions elsewhere. The model has two goods produced in two sectors or regions. Many identical consumers buy both goods using income from a fixed stock of capital that is mobile between sectors. An increase in one sector's carbon tax raises the price of its output, so consumption shifts to the other good, causing positive carbon leakage. However, the taxed sector substitutes away from carbon into capital. It thus absorbs capital, which shrinks the other sector, causing negative leakage. This latter effect could swamp the former, reducing carbon emissions in both sectors.

JEL-codes: H2 H23 Q48 Q54 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-ene, nep-env and nep-pbe
Note: EEE PE
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Citations: View citations in EconPapers (8)

Published as Negative Leakage (with Kathy Baylis and Daniel Karney), Journal of the Association of Environmental and Resource Economists (2014)

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Journal Article: Negative Leakage (2014)
Working Paper: Negative Leakage (2011)
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