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Discussion Paper

Trade, Leakage, and the Design of a Carbon Tax

Published: July 2020
Researchers consider solutions to the problem of leakage in global emissions, the phenomenon in which high-energy-usage industries have an incentive to relocate to countries with lower or no emissions restrictions.

Modeling the issue of leakage, researchers consider a scenario in which parts of the world impose emissions restrictions and the rest of the world remains passive. They propose optimal tax policies for both suppliers and demanders of fossil fuels, breaking down optimal strategies for aligning incentives among demanders that produce goods vs. consume goods.

Abstract and Citation

Trade, Leakage, and the Design of a Carbon Tax
David Weisbach, Samuel S. Kortum, Michael Wang, and Yujia Yao NBER Working Paper No. 30244
July 2022
JEL No. F18,H23,Q54