Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/226292 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8590
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We examine an open economy's strategy to reduce its carbon emissions by replacing its consumption of coal—very carbon intensive—with gas—less so. Unlike the standard theoretical approach to carbon leakage, we show that unilateral CO2 reduction policies generate a higher leakage rate in the presence of more than one carbon energy source, and may turn counterproductive, ultimately increasing world emissions. We establish testable conditions as to whether a unilateral tax on domestic CO2 emissions increases the domestic exploitation of gas, and whether such a strategy increases global emissions. We also characterize this strategy's implications for climate policy in the rest of the world. Finally, we present an illustrative application of our results to the US.
Subjects: 
unilateral climate policy
carbon emission reduction
shale gas
gas-coal substitution
coal exports
carbon leakage
US policy
counter-productive policy
JEL: 
Q58
H73
F18
Document Type: 
Working Paper
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