CEPII, Recherche et Expertise sur l'economie mondiale
Mercredi 15 mai 2019
14.00-15.00 - CEPII, 20, avenue de Ségur, 75007 Paris
Research seminar « Trade, Fossil Fuel Supply, and Leakage: The Consequences of Unilateral Withdrawals from the Paris Agreement »

Professor, University of Bayreuth

Countries that drop out of the Paris Agreement harm the effectiveness of the international initiative to lower greenhouse gas emissions in two ways. First, by cancelling their own reduction commitments, they fall back on a business as usual emission path, directly reducing the extent of the global emission reduction. Second, carbon leakage may occur in response to the climate policy of Paris member countries, actually increasing the withdrawing country's emissions above the level it would have experienced in the complete absence of the Paris Agreement. This leakage in turn occurs via two channels: emission-intensive production is shifted from committed to non-committed countries and the climate policies of Paris members lower their fossil fuel demand, driving down energy prices and hence leading to more energy-intensive production in non-committed countries. The paper develops an extended multi-sector structural gravity model with emissions from production and a constant elasticity of fossil fuel supply function that allows a decomposition of emission changes into scale, composition, and technique effects. It uses the extended framework to simulate the consequences of unilateral withdrawals from the Paris Agreement and finds that a US withdrawal would have the strongest effect, eliminating a third of the world emissions reduction.

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