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ConsumptionBased Approaches in International Climate Policy
This chapter uses the analytical model introduced in Chap. 7 to study those economic and environmental effects of different variants of international climate policy that are transmitted via nonenergy markets. A productionbased policy is compared with a consumptionbased one and with a policy that combines production and consumptionbased approaches by targeting both imports and exports of the abating coalition. Environmental effectiveness, carbon leakage, a simple measure of costeffectiveness, competitiveness, and the impacts on the international income distribution are used as criteria in assessing the different policy variants. A central result of the comparison is that with an equal carbon tax rate across policy variants, neither the productionbased nor the consumptionbased policy is environmentally more effective in all possible settings; rather the relative effectiveness of the two policy variants depends on the size of the abating coalition, demand and production parameters, and on the design of the policy instrument used. However, a policy combining the two approaches is always more effective than the two “pure” variants. Competiveness of the abating coalition is best protected by a consumptionbased policy. This policy variant also involves the least carbon leakage. As regards climate policy costs, the abating coalition however fares best under a productionbased policy. Finally, the effectiveness of a consumptionbased policy is reduced if a switch to “green” production technologies in emerging economies is impossible or is not incentivized by the policy instrument, which would be the case if carbon embodied in traded goods were assessed using benchmarks.
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This appendix demonstrates that a consumptionbased policy will always lead to a reduction (and not an increase) in global emissions through the nonenergy market policy transmission channel. We start from Eq. (
8.15). As can be seen, the policy affects emissions discharged in the production of goods
H and
M. Both goods are consumed by only one of the two representative consumers of our model, the representative consumer of region Home.
We will analyze the effect of the introduction of a positive tax. Our aim is to show that this will cause a drop in emissions in the production of
H and
M, i.e. that ∂
E/∂
t
^{ CB } < 0. The two terms −
σ
_{1} (1 −
θ
_{ H }) and −
σ
_{2} (1 −
θ
_{ M }) in Eq. (
8.15) will always be negative. It therefore suffices to show that the remainder of Eq. (
8.15)—which we will denote by the letter
V—cannot become positive. To this end, we first employ the HicksSlutsky equation in elasticity form to disaggregate the four price elasticities of demand in Eq. (
8.15) into net substitution and income components:
I denotes income (of the representative consumer). As both
H and
M are normal goods, the income components—the second terms in parentheses in each line—are all negative. Thus they also cause emissions to fall. If we are now able to show that the sum of the other four terms—the net substitution components—cannot become positive,
V will definitely be smaller than zero. The net substitution components represent the elasticities of compensated demand (as opposed to the four original elasticities
η
_{ hH },
η
_{ hM },
η
_{ mH }, and
η
_{ mM }, which are calculated from noncompensated demand). We will now use two results that hold true for compensated demand if a consumer’s expenditure function is twice continuously differentiable: (a) the crosssubstitution effects are symmetric: ∂
H/∂
p
_{ M } 
_{ U=const.} = ∂
M/∂
p
_{ H } 
_{ U=const.}; and (b) the substitution matrix
S = [∂
x
_{ i }/∂
p
_{ j } 
_{ U=const.}], i.e. the matrix formed from all substitution and crosssubstitution terms, is negative semidefinite. From (b) we have:
Equation (
8.36) can also be written in elasticity form. If we additionally multiply each elasticity by the factor of the respective elasticity in Eq. (
8.35), we arrive at a relationship between the changes in emissions caused by the net substitution terms:
Now consider the two crosselasticity terms—the second line of Eq. (
8.37). We will show that they are equal. By result (a) we can substitute ∂
H/∂
p
_{ M } 
_{ U=const.} for ∂
M/∂
p
_{ H } 
_{ U=const.} in the second of the two terms. Using Eqs. (7.3) and (
8.3), we also substitute for
E
_{ H },
E
_{ M },
θ
_{ H }, and
θ
_{ M }:
As can be seen from Eq. (
8.38), the two crosselasticity terms in Eq. (
8.37) are indeed equal. Equation (
8.37) is therefore of the form
ab −
c
^{2} ≥ 0. For
a,
b < 0 and
c > 0, this however implies 
a +
b − 2
c ≥ 0, and that is exactly what we wanted to show: The sum of the (negative) ownprice net elasticity terms is larger or equal in absolute value than the sum of the (positive) crossprice net elasticity terms; the change in emissions triggered by all four net substitution terms taken together is therefore smaller or equal to zero. And, as all the other terms in Eqs. (
8.15) and (
8.35) are negative—the income effect terms as well as the terms −
σ
_{1} (1 −
θ
_{ H }) and −
σ
_{2} (1 −
θ
_{ M }), the gross fuel price elasticity of the emissions rate—the introduction of a positive tax does indeed cause a drop in emissions in the production of
H and
M.
In a similar way one can also prove that ∂
E/∂
p
_{ E } and the elasticity
\( {\varepsilon}_{E,{p}_E} \) are both strictly smaller than zero—see Eq. (9.7): Start by splitting the four goods of the model into two pairs: the pair of goods demanded by the representative consumer in region Home,
H and
M, and the pair of goods demanded by the representative consumer in Foreign,
X and
F. For each pair of goods one can then show separately that a rise of the fuel price leads to a drop in emissions. Thus, the overall effect of an increase in the fuel price is a drop in emissions.
In this appendix, a relationship involving elasticities and quantities demanded will be discussed that proves useful at various points in the course of this chapter. Our aim is to derive a condition that guarantees that the following inequality holds true:
To that end, we will make use of a general relationship between ownprice and crossprice elasticities that is usually called “Cournot aggregation condition”:
η
_{ ii } is the ownprice elasticity of demand for a good
i,
η
_{ ji } are the crossprice elasticities of demand of other goods
j with respect to the price of good
i, and
s
_{ i } and
s
_{ j } are the shares of the consumer’s expenditure on goods
i and
j, respectively, in the consumer’s total expenditure.
Substituting the parameters of our model into this relationship yields
I is the income of the representative consumer. Rearranging terms gives
Now plug this expression into Eq. (
8.39) and simplify:
To obtain the last inequality, the relationships
i
_{ H } =
e
_{ H }/
p
_{ H } and
i
_{ M } =
e
_{ M }/
p
_{ M } were used. As
η
_{ mM } < 0, the left hand side of the inequality is negative. If
i
_{ M } >
i
_{ H }, i.e. if—as we have assumed—the emission intensity in region Foreign is larger than in region Home, the right hand side will be positive and thus the inequality will always hold true. Note that the condition
i
_{ M } >
i
_{ H } is sufficient, but actually not necessary—a weaker condition (with its exact form depending on parameter values) will also suffice to guarantee that inequality (
8.39) holds.
Also note that the assumptions on elasticities used here are somewhat more restrictive than those used in Appendix 1 to this chapter: When employing the Cournot aggregation condition, we have assumed that no other goods except for
H exist that are substitutes (or complements) for
M. In Appendix 1, on the other hand, the proof relies on the properties of the substitution matrix. These apply also to a “
ngood” case. Thus, even though just the two goods
H and
M were discussed, the derivation in Appendix 1 does not exclude a scenario with additional goods besides
H and
M in the consumption bundle of the representative consumer—goods that may be either substitutes or complements for
H and
M.
$$ \begin{array}{r}\hfill V=\frac{E_H}{p_E+{t}^{CB}}\left[{\theta}_H\left({\left.\frac{\partial H}{\partial {p}_H}\right}_{U= const.}\frac{p_H}{H}H\frac{\partial H}{\partial I}\frac{p_H}{H}\right)\right.+\\ {}\hfill + \left.{\theta}_M\left({\left.\frac{\partial H}{\partial {p}_M}\right}_{U= const.}\frac{p_M}{H}M\frac{\partial H}{\partial I}\frac{p_M}{H}\right)\right]+\\ {}\hfill + \frac{E_M}{p_E+{t}^{CB}}\left[{\theta}_H\left({\left.\frac{\partial M}{\partial {p}_H}\right}_{U= const.}\frac{p_H}{M}H\frac{\partial M}{\partial I}\frac{p_H}{M}\right)\right.+\\ {}\hfill +\left.{\theta}_M\left({\left.\frac{\partial M}{\partial {p}_M}\right}_{U= const.}\frac{p_M}{M}M\frac{\partial M}{\partial I}\frac{p_M}{M}\right)\right].\end{array} $$
(8.35)
$$ {\left.\frac{\partial H}{\partial {p}_H}\right}_{U= const.}{\left.\frac{\partial M}{\partial {p}_M}\right}_{U= const.}{\left.\frac{\partial H}{\partial {p}_M}\right}_{U= const.}{\left.\frac{\partial M}{\partial {p}_H}\right}_{U= const.}\ge 0. $$
(8.36)
$$ \begin{array}{c}\hfill\ \frac{E_H}{p_E+{t}^{CB}}\ {\theta}_H\left({\left.\frac{\partial H}{\partial {p}_H}\right}_{U= const.}\frac{p_H}{H}\right)\frac{E_M}{p_E+{t}^{CB}}\ {\theta}_M\left({\left.\frac{\partial M}{\partial {p}_M}\right}_{U= const.}\frac{p_M}{M}\right)\hfill \\ {}\hfill  \frac{E_H}{p_E+{t}^{CB}}\ {\theta}_M\left({\left.\frac{\partial H}{\partial {p}_M}\right}_{U= const.}\frac{p_M}{H}\right)\frac{E_M}{p_E+{t}^{CB}}\ {\theta}_H\left({\left.\frac{\partial M}{\partial {p}_H}\right}_{U= const.}\frac{p_H}{M}\right)\ge 0.\hfill \end{array} $$
(8.37)
$$ \begin{array}{c}\hfill \frac{e_HH}{p_E+{t}^{CB}}\ \frac{e_M\left({p}_E+{t}^{CB}\right)}{c_M}\ \frac{p_M\ }{H}\left({\left.\frac{\partial H}{\partial {p}_M}\right}_{U= const.}\right)=\hfill \\ {}\hfill =\frac{e_MM}{p_E+{t}^{CB}}\ \frac{e_H\left({p}_E+{t}^{CB}\right)}{c_H}\ \frac{p_H}{M}\left({\left.\frac{\partial H}{\partial {p}_M}\right}_{U= const.}\right)\ .\hfill \end{array} $$
(8.38)
$$ H{e}_H{\eta}_{hM}<M{e}_M{\eta}_{mM}. $$
(8.39)
$$ {\eta}_{ii}=1\frac{{\displaystyle {\sum}_{j\ne i}{\eta}_{ji}{s}_j}}{s_i}. $$
(8.40)
$$ \begin{array}{ll}{\eta}_{mM}=1\frac{\eta_{hM}{s}_H}{s_M},\hfill & \mathrm{where}\ {s}_H=\frac{H{p}_H}{I}\kern0.5em \mathrm{and}\ {s}_M=\frac{M{p}_M}{I}.\hfill \end{array} $$
(8.41)
$$ {\eta}_{hM}=\left({\eta}_{mM}+1\right)\frac{M{p}_M}{H{p}_H}. $$
(8.42)
$$ \begin{array}{c}\hfill H{e}_H\left({\eta}_{mM}+1\right)\frac{M{p}_M}{H{p}_H}<M{e}_M{\eta}_{mM},\hfill \\ {}\hfill \frac{1}{\eta_{mM}}<\frac{i_M}{i_H}1.\hfill \end{array} $$
(8.43)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Alternatively, one could model a capandtrade system, where emission quantities are fixed and the carbon price adjusts endogenously. However, in order to keep the model as simple as possible, this alternative will not be pursued here.
In this chapter,
H,
E
_{ H }, and
e
_{ H } are functions of just one variable,
t. Nonetheless, the symbol ∂ is used instead of
d to denote the derivatives, as a second variable,
p
_{ E }, will be introduced in Chap.
9. For now, however,
p
_{ E }, remains fixed.
See Allen (
1938) for a similar derivation of the effect of price changes on input demand.
First note that
e
_{ H } is an endogenous variable (the value of which is determined within the model), and not an exogenous parameter. Thus when we examine the effects of an “increase in
e
_{ H }” we have to be precise about the way in which this increase is brought about. Here, we assume that
e
_{ H } is changed while at the same time the quantities of goods demanded (and produced) are kept fixed, i.e. both
H and
X are fixed. This implies that the prices of these goods and thus their unit production costs
c
_{ H } and
c
_{ X } (which equals
c
_{ H }) must also be fixed. In other words, we are comparing different isoquants (stemming from different production functions) that all represent the same level of output and that are all tangent to the same line of equal unit costs. The points of tangency for these different isoquants differ in their factor employment ratios and thus in their emissions rate
e
_{ H }.
First consider the first term in the denominator in the second line of Eq. (
8.11). We will label it
T
_{1}. It decreases with increasing values of
e
_{ H }:
$$ \frac{\partial {T}_1}{\partial {e}_H}=H{\eta}_{hH}+X{\eta}_{xX}<0. $$
Next, look at the second term in the denominator in the second line of Eq. (
8.11). We will label it
T
_{2}. When differentiating this term with respect to
e
_{ H }, remember that
c
_{ H } remains fixed:
$$ \frac{\partial {T}_2}{\partial {e}_H}=\left(H+X\right){\sigma}_1>0. $$
This term decreases with increasing values of
e
_{ H }. Considering the sum of both terms, i.e. the whole denominator in the second line of Eq. (
8.11), we see that it is the relative magnitudes of
η
_{ hH },
η
_{ xX }, and
σ
_{1} (and of
H and
X) that determine whether this sum is increasing or decreasing with increasing values of
e
_{ H }:
$$ \frac{\partial \left({T}_1+{T}_2\right)}{\partial {e}_H}=H\left({\eta}_{hH} + {\sigma}_1\right)+X\left({\eta}_{xX}+{\sigma}_1\right). $$
The sign of this expression will decide whether the leakage ratio increases or decreases with increasing values of
e
_{ H } (differentiate Eq. (
8.11) with respect to
e
_{ H } applying the quotient rule and the chain rule of differentiation to show this). Thus, parameter values decide whether a higher emissions rate
e
_{ H } in region Home is under productionbased policy associated with a larger or a smaller leakage ratio. Loosely speaking, if the price elasticities of demand for the products
H and
X are large in absolute value compared to the elasticity of input substitution, the leakage ratio will be the smaller the larger the emissions rate in region Home.
Here the model of this study diverges from the standard approach followed by many studies that do not explicitly examine the effects of differential taxation—for example the study of Fischer and Fox (
2012). As opposed to such studies, this study permits that the climate policy pursued by Home influences production technology and thus the emissions rate
e
_{ M } in Foreign.
The sum of the two terms discussed in the text is:
$$ {E}_H{\eta}_{hM}\kern0.4em \frac{i_H}{i_M}\kern0.3em \frac{e_M\left({p}_E+{t}^{CBB}\right)}{c_M}+{E}_M{\eta}_{mM}\kern0.4em \frac{i_H}{i_M}\kern0.3em \frac{e_M\left({p}_E+{t}^{CBB}\right)}{c_M}=\frac{i_H}{i_M}\ \frac{e_M\left({p}_E+{t}^{CBB}\right)}{c_M}\left\{H{e}_H{\eta}_{hM}+M{e}_M{\eta}_{mM}\right\}. $$
Appendix 2 to this chapter demonstrates that the expression put in curly braces is negative. But as the factor of the expression in parenthesis is positive, we can conclude that also the whole expression—the sum of the two terms discussed in the text—is negative.
The figures used in this example are chosen for ease of exposition only and should not be considered as exact estimates of realworld data. Note that there is no unanimity in the academic literature on both the difference between production and consumptionbased emissions for the EU and the amount of carbon leakage that a unilateral abatement policy of the EU would cause.
To obtain Eq. (
8.18), it was assumed that the analysis starts from a situation without any previous tax in place. Without this assumption, the simplification that
θ
_{ X } equals
θ
_{ H } may not apply.
The last two of the following four arguments have first been discussed in a similar form in Steininger et al. (
2014).
This condition is formulated somewhat imprecisely. For a discussion of parameter restrictions that apply see Footnote 24.
Under a consumptionbased policy, emissions in the production of
M and
F taken together will fall if emissions in the production of
M fall (as the production of
F is not affected by a consumptionbased policy). From the properties of the substitution matrix of the representative consumer in Home we know (see Appendix 1 to this chapter) that either the emissions in the production of
H or those in the production of
M or those in the production of both goods must fall. But as we have assumed that the emissions rate in the production of
M is (by far) larger than the one in the production of
H, it will indeed typically be the emissions in the production of
M that fall (although—depending on the actual values of the elasticities of demand—an increase of the emissions in the production of
M cannot be excluded).
Absolute carbon leakage for an “importtaxonly” policy will be labelled
L
^{ PC }, and the leakage ratio will be labelled
l
^{ PC }. The two concepts can be defined as follows:
$$ \begin{array}{lll}{L}^{PC}=\varDelta {E}_F\hfill & \mathrm{and}\hfill &\ {l}^{PC}=\frac{\varDelta {E}_F}{\left(\varDelta {E}_H+\varDelta {E}_X+\varDelta {E}_M\right)}\hfill \end{array}. $$
Adding a new sector to the policy base will increase the reduction of emissions targeted by the policy if it does not cause counteracting effects in sectors targeted before that are larger than the emissions reduction in the new sector. For a detailed discussion—relating however to global emissions and not just to emissions within the policy base—see the paragraph following Eq. (
8.22).
Start from Eq. (
8.22) and disregard the last term (which is negative) for the moment. Simplifying the other two terms on the right hand side and using the relationships
E
_{ H } =
H e
_{ H } and
E
_{ M } =
M e
_{ M }, we see that Eq. (
8.22) will be definitely negative if
$$ H{e}_H{\eta}_{hM}<M{e}_M{\eta}_{mM}. $$
This is the relationship discussed in Appendix 2 to this chapter. It always holds true if
i
_{ M } >
i
_{ H }. Under this condition an importtaxonly policy will therefore be environmentally more effective than a productionbased policy.
Note that this change of the “composition” of consumption is conceptually somewhat different from the term “composition effect” introduced by Grossman and Krueger (
1991). These two authors refer to a change of the size of the various sectors that make up a country’s production. In the model of this study, each region produces only one good (or has only one “sector”) for domestic consumption. Thus, it does not exhibit a “composition effect” in the sense of the concept of Grossman and Krueger. Rather, the only substitution possible for consumers is between domestically produced and imported products.
One further qualification of such a type of analysis should be mentioned: as, for example, Stern (
2007) points out, marginal abatement costs are a only very crude approximation to total or average abatement costs and their use may therefore be misleading. This warning, however, applies more to studies interested in estimating the actual size of costs incurred by abatement policies. Here, on the other hand, we are less interested in quantitative results, and more in discovering the basic economic relationships characterizing unilateral abatement policies.
For example, in the calculation of the effect of the tax on goods prices, our model uses the “pretax” emissions rate. Actually, of course both variables—the goods prices and the emissions rate—change simultaneously when the tax is introduced. A “correct” calculation would therefore, when calculating the effect of the tax on goods prices, use an emissions rate that also reflects the effect of the tax. Such “crosseffects” are, however, disregarded in an analysis that relies on linear approximation.
MasColell et al. (
1995, 332) provide the following explanation: “[S]tarting from a position without any tax, the first order welfare effect of an infinitesimal tax is zero. Only as the tax rate increases above zero does the marginal effect become strictly negative. This is as it should be: if we start at an (interior) welfare maximum, then a small displacement from the optimum cannot have a firstorder effect on welfare.” Also in sectors of our model that are not directly targeted by the emissions tax (for example, all sectors in Foreign under a productionbased policy pursued by Home), a preexisting tax must be assumed—otherwise, the crossprice effects in these sectors (responsible, for example, for leakage) would all have zero impact on welfare (MasColell et al.
1995, 349).
The sign of Eq. (
8.31) can be determined as follows: The sum of the first and the last term in the second line must be negative if leakage in sector
X does not exceed 100 %. The second, the third, and the fourth term represent the (change in the) tax revenue, which—as argued above—is positive for not too large values of
t. But as the signs of these three terms are reversed, their sum is negative and therefore the whole Eq. (
8.31) is negatively signed.
Of course, in standard welfare analysis ultimately all welfare is derived only from consumption. The distinction here is drawn just to emphasize the two ways in which a consumer’s welfare can be reduced: either (a) the goods in the consumer’s consumption bundle become more expensive and she must therefore reduce the consumption of these goods or (b) her income falls, which also means that she now cannot afford to consume as many goods as before.
In our model, the ratio of “coalition GDP,” i.e. GDP of the region Home, to world GDP can be changed by changing any of the variables
H,
X,
M, and
F, and also by changing the prices of these four goods. But not all of these possible changes actually reflect what we usually have in mind when we talk of “increasing the coalition size.” A more or less “realistic” scenario for increasing the coalition size would look as follows: World GDP remains constant; the coalition, however, grows by taking in more and more countries—thus coalition GDP grows and noncoalition GDP falls by the same amount. Also, in real world situations typically the share of exports in a region’s production and the share of imports in a region’s consumption fall with an increase in the size of the region. Here, we will represent this thought experiment of changing the coalition size in a simplified form: all prices (
p
_{ H },
p
_{ X },
p
_{ M }, and
p
_{ F }) as well as
X and
M remain constant. Furthermore, we assume that
p
_{ H } equals
p
_{ F }. An increase of the coalition size can then be represented by an increase of
H and a reduction of
F by the same amount.
The difference in the reduction of global emissions between a production and a consumptionbased policy is given by
$$ \begin{array}{ll}\frac{\partial E}{\partial {t}^{PB}}  \frac{\partial E}{\partial {t}^{CB}}=\frac{1}{p_E+t}\hfill & \left\{\underset{<0}{\underbrace{H{e}_H{\eta}_{hM}\frac{e_M\left({p}_E+t\right)}{c_M}}}+\underset{<0}{\underbrace{X{e}_H\left[{\eta}_{xX}\frac{e_H\left({p}_E+t\right)}{c_H}{\sigma}_1\left(1\frac{e_H\left({p}_E+t\right)}{c_H}\right)\right]}}\right.\hfill \\ {}\hfill & \kern3em \underset{>0}{\underbrace{M{e}_M\left[{\eta}_{mM}\frac{e_M\left({p}_E+t\right)}{c_M}{\sigma}_2\left(1\frac{e_M\left({p}_E+t\right)}{c_M}\right)\right]}}+\left.\underset{>0}{\underbrace{F{e}_M{\eta}_{f\;X}\frac{e_H\left({p}_E+t\right)}{c_H}}}\right\}.\hfill \end{array} $$
Again, to simplify the analysis, it was assumed that there is no previous tax in place (due to this assumption,
inter alia,
e
_{ X } equals
e
_{ H } and
e
_{ F } equals
e
_{ M }). The equation actually gives the same information as Eq. (
8.18)—with the difference that it is not written in elasticity form and that some of the variables in Eq. (
8.18) have been further disaggregated. Again, if the whole equation is positive, then a consumptionbased policy is the more effective one. To investigate the effects of changes in parameter values, differentiate this equation with respect to the parameter under question. Note, however, that care should be taken when examining the effects of changes of endogenous variables—see Footnote 5 for a more detailed discussion.
To prove this result, assume—like in Footnote 5—that the quantities of goods demanded and the unit production costs remain fixed while
e
_{ M } is varied. Now differentiate the equation from Footnote 23—we will label it
A—with respect to
e
_{ M }:
$$ \frac{\partial A}{\partial {e}_M}=\underset{T_1<0}{\underbrace{\frac{H{e}_H{\eta}_{hM}}{c_M}}}\underset{T_2>0}{\underbrace{\frac{2M{e}_M{\eta}_{mM}}{c_M}}}+\underset{T_3>0}{\underbrace{\frac{M{\sigma}_2}{p_E+t}}}\underset{T_4<0}{\underbrace{\frac{2M{e}_M{\sigma}_2}{c_M}}}+\underset{T_5>0}{\underbrace{\frac{F{\eta}_{f\;X}{e}_H}{c_M}}}. $$
First, consider the first and the second term of the equation,
T
_{1} and
T
_{2}. Their sum will be >0 if –
He
_{ H }
η
_{ hM } – 2
Me
_{ M }
η
_{ mM } > 0. Appendix 2 to this chapter demonstrates that
He
_{ H }
η
_{ hM } < –
Me
_{ M }
η
_{ mM } if
i
_{ M } >
i
_{ H }. Thus under this condition also the sum of
T
_{1} and
T
_{2} will definitely be positive. Next, look at
T
_{3} and
T
_{4}. These two terms give the effect on emissions through the change of the emissions rate in the production of imports (the “greening” of imports). By rearranging terms one can see that the sum of
T
_{3} and
T
_{4} will be positive if the following condition holds: 1/2
c
_{ M } >
e
_{ M } (
p
_{ E } +
t). The fifth term of the equation above,
T
_{5}, will always be positive. Thus we have established two conditions that—if they both hold—guarantee that the whole equation is positive, i.e. that a consumptionbased policy becomes relatively more effective with increasing values of the emissions rate in Foreign. These conditions are (i) that the emissions intensity in region Foreign is larger than in Home, and (ii) that the share of costs of fossil fuel in the production costs of imports is less than half of the overall production costs of imports. Note that these conditions are sufficient but not necessary for obtaining the result just stated.
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 Titel
 Effects of Policy Transmission via NonEnergy Markets
 DOI
 https://doi.org/10.1007/9783319159911_8
 Autor:

Christian Lininger
 Sequenznummer
 8
 Kapitelnummer
 Chapter 8