It is tricky to design local regulations on global externalities, especially so if firms are mobile. We show that when costs and outside options are firms’ private information, the threat of firm relocation leads to local regulations that are stricter, not looser. This result is general and...

There are many reasons to suspect that benefit-cost analysis applied to environmental policies will result in policy decisions that will reject those environmental policies. The important question, of course, is whether those rejections are based on proper science. The present paper explores...

For any emission trading system (ETS) with quantity-based endogenous supply of allowances, there exists a negative demand shock, e.g. induced by abatement policy, that increases aggregate supply and thus cumulative emissions. We prove this green paradox for a general model and then apply it to...

Green innovation is essential for climate change mitigation, but not all innovative projects deliver equal social value. We consider innovator heterogeneity in a model where the policy maker cannot observe innovation quality and directly subsidize the socially most valuable green innovations. We...

We analyse the economic impact of using carbon pricing revenue to fund the EU budget. Such a reform would redistribute from countries with above average carbon intensive production to less carbon intensive countries. Once the reform is implemented, the low carbon countries will prefer a lower...

We provide ex-post empirical analysis of the effects of climate policies on carbon dioxide emissions at the aggregate national level. Our results are based on a comprehensive database of 121 countries. As climate policies we examine carbon taxes and emissions trading systems (ETS), as well as...

For any emission trading system (ETS) with quantity-based endogenous supply of allowances, there exists a negative demand shock, e.g. induced by abatement policy, that increases aggregate supply and thus cumulative emissions. We prove this green paradox for a general model and then apply it to...

We examine an open economy’s strategy to reduce its carbon emissions by replacing its consumption of coal—very carbon intensive—with gas—less so. Unlike the standard theoretical approach to carbon leakage, we show that unilateral CO2 reduction policies generate a higher leakage rate in...