京都大学 大学院経済学研究科・経済学部

“Carbon leakage in 3D: Emissions Trading Systems and the evolutionary dynamics of green, dirty and delocalizing firms”

Abstract: The debate on the carbon leakage risk of unilateral climate policies is gaining momentum along with theincrease in carbon prices and in the ambition of emissions reduction targets. While empirical evidence on carbonleakage is weak or absent so far, more firms might decide to delocalize their activity in the future due to higher carbonprices. To investigate this issue, a simple theoretical model is proposed which analyses the choices of a population offirms subject to an Emissions Trading System (ETS). Each firm has three alternative strategies at disposal: (i) green:stop polluting by investing in a clean technology, (ii) dirty: keep polluting by purchasing the correspondent emissionallowances under the ETS, (iii) delocalizing: keep polluting by relocating its activities to an ETS-free jurisdiction.
We examine the dynamics emerging from the interaction of green, dirty and delocalizing firms and performcomparative dynamics at different values of some key ETS design features, such as the number of all owancesgranted for free to ETS firms, the quantity of allowances being auctioned, and the allowances minimum price level.Numerical simulations show the presence of cyclic behaviors and the possible extinction of one or more kinds of firmsunder different parameter values. Finally, we discuss the policy implications deriving from the results of the modelstressing the impact of the ETS design on firms' decarbonisation and delocalization.