Addressing the concerns about carbon leakage in the implementation of carbon pricing policies: a focus on the issue of competitiveness

Abstract

This article investigates whether the implementation of asymmetric carbon pricing policies leads to carbon leakage. We first present the theoretical mechanisms behind carbon leakage. Secondly, we conduct a review of the existing empirical results of carbon leakage. We focus on the competitiveness channel and therefore rely on papers analysing the effects of asymmetric carbon prices on both trade and investment flows. Lastly, we discuss solutions to reduce carbon leakage, so that acceptability towards ambitious carbon pricing policies can be maximized.