Conference Agenda

The "renewables pull effect", defined as the pull factor on industries by regions with favorable renewable energy potential, and "carbon leakage", the relocation of industries into regions with less strict climate policies, have the potential to reshape global value chains. Previous research has shown that energy intensive industries are under special pressure to relocate and that hydrogen-based industries, such as steel or chemical manufacturing, can achieve cost reductions by relocating part of the value chain. With this study, we expand the scope of the literature by investigating the susceptibility of hydrogen-based industries to the renewables pull effect and carbon leakage in a global general equilibrium model. Our model distinguishes industries based on their decarbonization pathway into electrifiable and hydrogen-based and incorporates international trade of intermediate goods as well as hydrogen. We introduce a climate policy, consisting of a CO$_2$ tax, carbon border adjustment taxes, and transfer payments, and analyze different policy scenarios to identify the two driving effects for industry relocation. The different scenarios also yield insights about the effectiveness of carbon border adjustment taxes, providing valuable knowledge for policy makers. A key feature of our model is its closed-form solution, which allows to explicitly derive the optimal carbon tax and market solutions. Future research steps will include a numerical calibration of the model, quantifying the magnitude and direction of industry relocation as well as the relative strength of the renewables pull effect and carbon leakage.

Agricultural expansion and deforestation are major drivers of greenhouse gas (GHG) emissions. The European Deforestation Regulation (EUDR) seeks to reduce deforestation-related emissions by focusing on selected deforestation-risk agricultural commodities. This paper examines the potential effects of the EUDR on international trade and global GHG emissions, particularly investigating leakage and displacement effects. Combining a land-balance model and the integrated assessment model GCAM, we assess the agricultural sector’s contribution to deforestation, identify high-risk countries and sub-regions, and conduct an ex-ante analysis of the possible effects of policy implementation. Our results indicate that, although the regulation has a limited impact on reducing deforestation levels, it can curb land use change (LUC) emissions and limit agricultural expansion in critical regions when implemented stringently and in coordination with other countries. However, the policy also leads to emissions leakage and trade and production diversion, which reduces its global mitigation potential, underscoring the need for broad, coordinated international efforts to effectively address deforestation.

Global environmental externalities are one of the most pressing policy challenges of the

modern era. Unilateral policy options to address global externalities are limited, however, by sovereignty and a general difficulty in achieving environmental objectives across national borders. We study an emerging trade policy tool used in cross-border environmental policies—environmental standards for imports—using a European Union program aimed at mitigating illegal timber harvest in tropical timber exporting countries. Through bilateral agreements with partner countries, the program established de facto import restrictions through supply chain transparency and certification requirements on forest-products. We find that the policy led to a diversion of partner country exports away from the EU towards other markets, particularly in Asia, and had no discernible reductions on forest loss. Our findings highlight the role that trade diversion can play as a leakage mechanism in such cross-border environmental policies.

Green technologies---such as solar panels, wind turbines, and batteries---are heavily reliant on mineral inputs like cobalt, lithium, and nickel, for which supplies are geographically concentrated. This paper analyses how market power in critical minerals and strategic interactions between regions affect the energy transition. It develops and parameterises a two-region analytical model of a resource-rich region (East) and a resource-scarce, energy-consuming region (West). Both regions mine and trade minerals, as well as the green capital required to replace fossil fuels in energy production. Results demonstrate how East's market power over critical minerals slows down the energy transition, increases cumulative carbon emissions in West, and lowers West's welfare. East's market power significantly changes the speed and order of extraction of different mineral reserves. When West commits to a carbon budget, East benefits due to higher profits from mineral mining and green capital production. Following unilateral strategies, West gains from taxing imported green capital goods, and then East finds it optimal to tax mineral exports. West can also reap strategic benefits from a moderate subsidy on the recycling of minerals. Collective welfare would be highest without trade interventions, even under cartel-fringe competition.