Subglobal Climate Agreements and Energy-Intensive Activities: Is there a Carbon Haven for Copper?

Bruno Lanz, Thomas F. Rutherford and John E. Tilton

February 2011

Bruno Lanz, Thomas F. Rutherford and John E. Tilton, February 2011

Subglobal climate policies induce changes in international competitiveness and favor a relocation of carbon-emitting activities. We argue that many energy-intensive activities are also capital-intensive, so that carbon policies could affect rents rather than abatement or location. Taking copper as an example, we formulate a plant-level spatial equilibrium model of the industry, and we estimate a set of elasticities to calibrate the behavioral parameters of the model. Given 2007 market conditions, Monte Carlo simulations suggest that a $50/tCO2 tax in industrialized countries induces emissions reductions of less than one percent in the copper industry, with a mean emission leakage rate of 25%. Our results conform with empirical findings on the pollution haven effect but challenge projections from computable general equilibrium models.

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