NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Robert A. Ritz

Energy Policy Research Group
Judge Business School
University of Cambridge
Trumpington Street
Cambridge CB2 1AG
United Kingdom

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: University of Cambridge

NBER Working Papers and Publications

March 2019Understanding Overlapping Policies: Internal Carbon Leakage and the Punctured Waterbed
with Grischa Perino, Arthur van Benthem: w25643
We present an integrated framework to understand the emissions impact of unilateral overlapping policies within a carbon-pricing system. "Internal carbon leakage" captures emissions displacement within the system (e.g., due to greater product imports from a neighbouring country). The waterbed effect captures the policy's interaction with the system's overall emissions cap. Current market rules in the reformed EU ETS, California's carbon market and RGGI feature "punctured" waterbeds that allow overlapping policies to affect aggregate emissions. We present simple formulae to estimate internal carbon leakage for different types of policy such as a carbon price floor (perhaps with a border tax adjustment), an energy efficiency program, and renewables support. The sign and magnitude of the clim...
 
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