The Impacts of Unilateral Climate Policy on Competitiveness: Evidence From Computable General Equilibrium Models

Abstract

When considering the adoption of a domestic climate change policy, politicians and the public frequently raise concerns about competitiveness. Competitiveness in this context does not have a precise economic definition. In this article we discuss possible ways to anchor the concept of competitiveness in economic analysis. We then use this framework as the basis for a systematic survey of the literature on the quantitative impacts of unilateral climate change policy, which are derived from the results of computable general equilibrium (CGE) models. We present empirical estimates from this literature on the magnitude of competitiveness effects that might be associated with the adoption of unilateral climate change policies. We find that there is significant agreement in the literature that unilateral emissions abatement is likely to lead to modest reductions in output and exports from emissions-intensive trade-exposed (EITE) sectors. On average, policies designed to reduce economy-wide emissions by 20 percent are estimated to reduce EITE output by 5 percent and exports by 7 percent. We also find that the results of models are highly dependent on modeling assumptions. Finally, we propose some avenues for future research using CGE models.