VIDEO – Leave or remain? An evolutionary approach to carbon leakage in Emission Trading Systems

A post by the LIFE DICET project team

On 16 February 2021, Simone Borghesi, Director of FSR Climate and of the project LIFE DICET, was invited by a consortium of French universities and institutions to speak at SWEEET – a pan-institute Series of Webinars in Economics of Environment, Energy and Transports. SWEEET’s main objective is to propose an opportunity to environment and energy scholars for exchanging and interacting with a broader audience.

During the webinar, Simone Borghesi presented a paper called “Leave or remain? An evolutionary approach to carbon leakage in Emission Trading Systems“, which he co-authored with Angelo Antoci, Gianluca Iannucci and Mauro Sodini.

Emissions trading is gaining increasing importance around the world as a suitable instrument to address climate change. In the absence of a global carbon market, however, unilateral carbon policies may end up causing carbon leakage effects, the more so if carbon prices are to increase in the future to achieve more ambitious emissions abatement targets.

The work presented in this seminar intended to explore the possible delocalization effects of an Emissions Trading System (ETS) by proposing an evolutionary theoretical model in which regulated firms decide whether to stay (keep their production activities in the domestic country) or leave (move production abroad where no ETS is in place) imitating what other firms do.

Using numerical simulations, the authors show that the firms’ decision on whether to stay or relocate abroad, and on how many allowances to purchase (and/or emissions to abate) for those that stay, may be more sensitive to policies that reduce the cost of green technologies than to changes in specific features of the ETS design.

Watch the recording:

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