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Faculty Research Working Paper Series
Joseph Aldy
Associate Professor of Public Policy
phone: (617)496-7213
The Competitiveness Impacts of Climate Change Mitigation Policies
Aldy, Joseph E., and William A. Pizer. "The Competitiveness Impacts of Climate Change Mitigation Policies." HKS Faculty Research Working Paper Series RWP15-046, August 2015.
Abstract
The pollution haven hypothesis suggests that unilateral domestic climate change mitigation policy would impose significant economic costs on carbon-intensive industries, resulting in declining output and increasing net imports. In order to evaluate this hypothesis, we undertake a two-step empirical analysis. First, we use historic energy prices as a proxy for climate change mitigation policy. We estimate how production and net imports change in response to energy prices using a 35-year panel of approximately 450 U.S. manufacturing industries. Second, we take these estimated relationships and use them to simulate the impacts of changes in energy prices resulting from a domestic climate change mitigation policy that effectively imposes a $15 per ton carbon price. We find that energy-intensive manufacturing industries are more likely to experience decreases in production and increases in net imports than less-intensive industries. Our best estimate is that competitiveness effects – measured by the increase in net imports – are as large as 0.8 percent for the most energy-intensive industries and represent no more than about one-sixth of the estimated decrease in production under a $15 per ton carbon price.
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