On the Effects of Unilateral Environmental Policy on Offshoring in Multi-Stage Production Processes

41 Pages Posted: 10 Feb 2015

See all articles by Oliver Schenker

Oliver Schenker

Frankfurt School of Finance & Management gemeinnützige GmbH

Simon Koesler

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 19, 2014

Abstract

In the last decades supply chains emerged that stretch across many countries. This has been explained with decreasing trade and communication costs. We extend the literature by analyzing if and how unilateral environmental regulation induces offshoring to unregulated jurisdictions. We first apply an analytical partial-equilibrium model of a two-stage production process that can be distributed between two countries and investigate unilateral emission pricing and its supplementation with border carbon taxes. To get a more comprehensive picture, we subsequently apply a computable general equilibrium model that includes a better representation of international supply chains. We find heterogeneous, but mostly positive effects of a unilateral carbon emission reduction by the European Union on the degree of vertical specialisation of European industries and explain these differences by heterogeneity in the emission-intensity and pre-policy vertical specialisation of sectors. Border taxes are successful in protecting upstream industries, but with negative side effects for downstream industries.

Keywords: Unilateral Climate Policy, Border Carbon Taxes, Vertical Specialisation, Offshoring, Outsourcing, Computable General Equilibrium

JEL Classification: C68, F12, F18, Q58

Suggested Citation

Schenker, Oliver and Koesler, Simon and Löschel, Andreas, On the Effects of Unilateral Environmental Policy on Offshoring in Multi-Stage Production Processes (December 19, 2014). ZEW - Centre for European Economic Research Discussion Paper No. 14-121, Available at SSRN: https://ssrn.com/abstract=2562311 or http://dx.doi.org/10.2139/ssrn.2562311

Oliver Schenker (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Simon Koesler

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim
Germany

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/eroe

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