Competitiveness, Emissions Leakage, and Climate Policy By Carolyn Fischer and Richard Morgenstern
One of the obstacles to implementing climate policy in the United States has been the worry that domestic firms competing in global markets will be disadvantaged by the program. In turn, this might cause increases in emissions in other countries as footloose capital relocates to countries with no policies to control greenhouse gases. This week, Carolyn Fischer and Richard Morgenstern discuss the serio.usness of these concerns and what measures might be taken to limit the problem of emissions leakage.
In the debate over the design of mandatory federal carbon pricing policies, the potential for adverse effects on energy-intensive, import-sensitive industries, on domestic jobs, and on the nation´s trade balance consistently emerge as significant concerns.  Equally important is the potential for erosion of the environmental benefits if an increase in domestic production costs causes more production activities to shift to nations with weaker climate mitigation policies, or none at all. Various policy options have been advanced to address these concerns, although none is without its own problems. 

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Updated: 2010-04-15