The Erb Colloquium Series welcomes David Drake

Thursday, March 30, 2017
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11:30 AM to 1:00 PM
Stephen M. Ross School of Business, 701 Tappan Street, Room R2240, Ann Arbor, MI 48109

The Erb Colloquium Series is an informal brown bag gathering to discuss the latest research in sustainable enterprise from both within and outside the University.

March 30th, 11:30am-1:00pm

Professor David Drake, Harvard Business School, talks about "Carbon Tariffs: Effects in Settings with Technology Choice".

Abstract: Emissions regulation today is non-uniform, with some regions imposing carbon costs within their borders while many others do not. This gives rise to concerns over carbon leakage---offshoring and foreign entry in response to regional asymmetry in carbon costs. It is widely believed that carbon leakage would result in increased global emissions, undermining the intent of emissions regulation. It is also widely believed that carbon tariffs---carbon taxes imposed on goods imported from an unregulated region to a region subject to carbon costs---would eliminate this leakage. Results here contrast these beliefs. This paper demonstrates that carbon leakage can arise despite a carbon tariff but, when it does, it decreases emissions in practical settings. Due in part to this clean leakage, imposing a carbon tariff is shown to decrease global emissions. Domestic firm profits, on the other hand, can increase, decrease, or remain unchanged due to a carbon tariff. A carbon tariff, therefore, is not inherently protectionist as some argue. Rather, a carbon tariff improves the efficacy of emissions regulation, enabling emissions price to be used to reduce global emissions in many settings in which it would otherwise fail to do so.