The Competitiveness Impacts of Climate Change Mitigation Policies

Abstract

Listen

Translate article

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 estimate how production and net imports change in response to energy prices using a 35-year panel of approximately 450 US manufacturing industries. Second, we use these estimated relationships to simulate the impacts of changes in energy prices resulting from 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% for the most energy-intensive industries and represent no more than about one-sixth of the estimated decrease in production.