Epsilon Archive for Student Projects

Abstract

This analysis investigates the relationship between unilateral climate policy and the risk of carbon leakage in the steel sector. A simple analytical
macroeconomic model is employed to highlight the various parameters influencing the magnitude of carbon leakage. An extended version of the model
allows for assessing the impacts of induced technical change and technological spillover effects on the industry’s carbon leakage. A numerical illustration
using sector-specific parameters shows that the leakage rate within the steel
sector is 27%. Accounting for induced technological change and spillover effects reveals that higher rates of innovative activity reduce the risk of carbon
leakage within the sector. In the presence of technological spillover effects
under the assumption that the rate of technological change is 0.8, the carbon
leakage rate reduces to 5%. The impact of induced technological change on
carbon leakage in the steel industry implies that a global industrial network
empowering the expansion of new technologies has the potential to decrease
the industry’s overall emissions.