FEEM working papers "Note di lavoro" series
2010 .019

Capital Malleability and the Macroeconomic Costs of Climate Policy

Authors: Elisa Lanzi, Ian Sue Wing
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Journal
Keywords: General Equilibrium, CGE Models, Climate Change Policy
JEL n.: C68, D58, H22, Q43
JEL: Environmental and Resource Economics
Pages: pp 257-289
Date: 06/2013


This paper argues for introducing the role of capital malleability into the analysis of environmental policies. The issue is explored by means of a theoretical model, a numerical analysis and a computable general equilibrium (CGE) model. Considering the three approaches together is fundamental in obtaining theory-compatible policy-relevant results. The model outcomes reveal differences between results under separate assumptions regarding the malleability of capital. When capital is imperfectly malleable a carbon policy is less effective than under the assumption of perfect malleability of capital. Therefore, it is important that, especially for the analysis of short-term environmental regulations, the issue of capital malleability is taken into consideration.


Suggested citation: Elisa Lanzi, Ian Sue Wing, Capital Malleability, Emission Leakage and the Cost of Partial Climate Policies: General Equilibrium Analysis of the European Union Emission Trading System, Environmental and Resource Economics
June 2013, Volume 55, Issue 2, pp 257-289, http://rd.springer.com/article/10.1007%2Fs10640-012-9625-8

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