We extend the model of Fullerton, Karney, and Baylis (2012 working paper) to explore cost-effectiveness of unilateral climate policy in the presence of leakage. We ignore the welfare gain from reducing greenhouse gas emissions and focus on the welfare cost of the emissions tax or permit scheme....

This paper uses an estimated demand system that accounts for heterogeneity to calculate and compare the lost consumer surplus from a higher tax on gasoline, a tax on distance, or a subsidy for buying a newer car. We introduce a view of cost-effectiveness that compares policies instead of...