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Florian Misch and Mr. Philippe Wingender
This paper estimates the carbon leakage rate across countries, arguably a key parameter in the international climate policy discussion including on border carbon adjustment, but which remains subject to significant uncertainty. We propose innovations along two lines. First, we exploit recently published data on sector-country-specific changes in energy prices to identify changes in domestic carbon emissions and other flows (rather than the historically limited variation in carbon prices or adherence to international climate agreements). Second, we present a simple accounting framework to derive carbon leakage rates from reduced-form regressions in contrast to existing papers, thereby making our results directly comparable to model-based estimates of carbon leakage. We show that carbon leakage rates differ across countries and could be larger than what existing estimates suggest.
Jochen Schmittmann
Green debt markets are rapidly growing while product design and standards are evolving. Many policymakers and investors view green debt as an important component in the policy mix to achieve the transition to a low carbon economy and ensure the pricing of climate risks. Our analysis contributes to the nascent literature on the environmental impact of green debt by documenting the CO2 emission intensity of corporate green debt issuers. We find lower emission intensities for green bond issuers relative to other firms, but no difference for green loan and sustainability-linked loan borrowers. Green bond, green loan, and sustainability-linked loan borrowers lower their emission intensity over time at a faster rate than other firms.
Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, Ricardo Marto, and Gewei Wang
We provide a comprehensive analysis of the relationship between greenhouse gas (GHG) emissions and GDP in China using both aggregate and provincial data. The Kuznets elasticity is about 0.6 for China, higher than that in advanced countries but below that of major emerging markets. The elasticity is somewhat lower for consumption-based emissions than for production-based emissions, providing mild evidence consistent with the “pollution haven” hypothesis. The Kuznets elasticity is much lower for the last three decades than for the three previous decades, suggesting a longer-term trend toward decoupling as China has become richer. Further evidence of this comes from provincial data: richer provinces tend to have smaller Kuznets elasticities than poorer ones. In addition to the trend relationship, we find that the Environmental Okun's Law holds in China.
Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, and Ricardo Marto
For the world's 20 largest emitters, we use a simple trend/cycle decomposition to provide evidence of decoupling between greenhouse gas emissions and output in richer nations, particularly in European countries, but not yet in emerging markets. If consumption-based emissions—measures that account for countries' net emissions embodied in cross-border trade—are used, the evidence for decoupling in the richer economies gets weaker. Countries with underlying policy frameworks more supportive of renewable energy and climate change mitigation efforts tend to show greater decoupling between trend emissions and trend GDP, and for both production- and consumption-based emissions. The relationship between trend emissions and trend GDP has also become much weaker in the last two decades than in preceding decades.
Mr. Geoffrey J Bannister and Mr. Alex Mourmouras
We present estimates of welfare by country for 2007 and 2014 using the methodology of Jones and Klenow (2016) which incorporates consumption, leisure, mortality and inequality, and we extend the methodology to include environmental externalities. During the period of the global financial crisis welfare grew slightly more rapidly than income per capita, mainly due to improvements in life expectancy. This led to welfare convergence in most regions towards advanced country levels. Introducing environmental effects changes the welfare ranking for countries that rely heavily on natural resources, highlighting the importance of the natural resource base in welfare. This methodology could provide a theoretically consistent and tractable way of monitoring progress in several Sustainable Development Goal (SDG) indicators.
Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, and Ricardo Marto
Recent discussions of the extent of decoupling between greenhouse gas (GHG) emissions and real gross domestic product (GDP) provide mixed evidence and have generated much debate. We show that to get a clear picture of decoupling it is important to distinguish cycles from trends: there is an Environmental Okun's Law (a cyclical relationship between emissions and real GDP) that often obscures the trend relationship between emissions and real GDP. We show that, once the cyclical relationship is accounted for, the trends show evidence of decoupling in richer nations—particularly in European countries, but not yet in emerging markets. The picture changes somewhat, however, if we take into consideration the effects of international trade, that is, if we distinguish between production-based and consumption-based emissions. Once we add in their net emission transfers, the evidence for decoupling among the richer countries gets weaker. The good news is that countries with underlying policy frameworks more supportive of renewable energy and supportive of climate change tend to have greater decoupling between trend emissions and trend GDP, and for both production- and consumption-based emissions.
Ian W.H. Parry
Fiscal instruments are potentially among the most effective, and cost-effective, options for addressing externalities related to poor air quality, urban road congestion, and greenhouse gases. This paper takes a case study, focused on Mauritius (a pioneer in the use of green taxes) to illustrate how existing taxes, especially on fuels and vehicles, could be reformed to better address these externalities. We discuss, in particular, an explicit carbon tax; a variety of options for reforming vehicle taxes to meet environmental, equity, and revenue objectives; and a progressive transition to usage-based vehicle taxes to address congestion